ERISA Bond Guide: Cost & Requirements

An ERISA bond is a financial guarantee that those who administer an employee benefit plan will act ethically. ERISA bonds are one of many types of fidelity bonds, which protect employers from dishonest acts by their employees — in this case, usually embezzlement, forgery and theft related to employee benefit plans. Premiums typically start at $300 for a $250,000 3-year policy, but will vary on your qualifications.

In this ERISA bond guide, you will learn all about this bond, including:

• Definition & Example

• How It Works

• Cost & Requirements

• Where to Find & How to Apply

• FAQs

ERISA Bond Definition and Example

An ERISA fidelity bond is a type of surety bond that protects employers when employees commit dishonest acts related to employee benefit plans, including larceny, embezzlement, forgery and more. Losses from claims related to these acts are covered by the bond. Unlike other types of fidelity bonds, an ERISA bond is mandatory for any institution that handles employee benefit plans.

What is an example of ERISA Bond?

Let’s say a company retains your services to facilitate the employee benefit plans of their employees. Later, it was discovered and confirmed true that one of your employees has been embezzling funds from one of your client’s employee benefit plans. The ERISA bond would cover any losses incurred by your dishonest employee.

How Does an ERISA Bond Work?

The regulations for an ERISA bond fall under the Employee Retirement Income Security Act (ERISA), which was established to create standards for how employee benefit plans are invested and managed. This act was created in response to concerns by employees on how their money was being managed and sometimes exploited — after all, many people will rely on their retirement account to spend their golden years peacefully. Dishonest acts by benefit plan administrators have included:

• Larceny

• Embezzlement

• Forgery

• Theft

• Wrongful conversion 

To protect workers and their hard-earned money, the ERISA created the requirement that employee benefit plan administrators must meet their fiduciary duties — that now includes obtaining a surety bond. An ERISA bond for 401(k) plans, for example, are commonly needed. Any person involved in the handling of the funds or property of an employee benefit plan (e.g., mortgages, employee contributions, physical documents, assets) must be covered under an ERISA bond.

Naturally, the information on an ERISA bond will vary per company but will generally cover:

• Bond amount: The amount the bond will cover in losses. The Policy must equal 10% of the funds controlled by the trustee or fiduciary. ERISA bond limit requirements start at $1,000, but can increase to $500,000. A  $1,000,000 Policy can be required, if the plan holds employee securities.
  

• Premium: How much the ERISA bond will cost — typically $100 for a $10,000 policy, coving you for 3 years. A $500,000 Policy covering you for 3 years can cost $500

• Term: How long the bond lasts until it must be renewed — usually one to three years.

What happens when a claim is filed?

If it’s discovered and confirmed true that your employee committed a wrongful act related to an employee benefit plan, then the surety will pay to satisfy the claim and any related losses. If there is no wrongdoing found, then no financial action will be taken. Keep in mind that bonds don’t function like insurance. You would still be responsible for repaying the surety the full amount of any claim payouts.

ERISA Bond Cost & Requirements

ERISA bond requirements can change based on the amount and type of assets being managed. These are the required bond amounts noted under the Employee Retirement Income Security Act:

• 10% of the amount of funds being managed.

• $1,000 is the minimum bond amount.

• $500,000 is the maximum bond amount.

The maximum amount increases to $1,000,000 for benefit plans that hold employer securities.

If you have an Non-Qualified ERISA plan, the Government will require 100% of the assets cover.

Premiums will vary by the bond amount. For example, let’s say your company manages $500,000 in employee benefit assets. You can expect to pay $500 for a 3-year term.

Terms will vary from one to three years, but you will have to carry the policy while you administer the plan.

How Do I Get an ERISA Bond?

You can find ERISA bonds sold at insurance companies — even national carriers offer them — and they’re also available through specialized surety bond companies. Fortunately, much of the process to obtain an ERISA bond can be done online with the following steps:

1. Submit an application

2. Receive a premium quote based on your qualifications.

3. Purchase and receive your bond.

4. File your ERISA Bond with the governing agency requiring the bond.

Applying for an ERISA Bond 

Obtaining an ERISA Bond is easy when applying with Worldwide Insurance, Inc. Just fill out our initial application form and get an instant quote in minutes.

ERISA Bond FAQs

What is an ERISA bond?

An ERISA bond is a type of fidelity surety bond that protects the employer against dishonest acts related to an employee benefit plan by the company’s employees, including fraud, embezzlement, wrongful conversion, forgery and more. 

Who needs an ERISA bond?

An ERISA bond is required by law for any fiduciary that handles the funds an employee benefit plan. Types of funds that would qualify include, employee contributions, Stocks and bonds

What’s the difference between an ERISA bond and fiduciary liability insurance?

An ERISA bond is a type of surety bond that protects a company against losses incurred by dishonest acts related to an employee benefit plan (e.g., fraud, embezzlement). Fiduciary liability insurance protects a fiduciary against losses when they violate their fiduciary responsibilities (e.g., improper advice or council, mismanagement of funds, conflict of interest) and applies to financial professionals beyond just employee benefit plan administrators. Moreover, ERISA bonds are required to have by law, and fiduciary liability insurance usually is not.

How long does an ERISA bond last?

Terms on an ERISA bond typically last between one and three years, depending on the surety you work with. You would need to pay another premium to renew your bond term.

What type of surety bond do I need?

Visit our list of bonds by state to get a closer idea of your bonding requirements. To learn more about surety bonds in general, check out our free surety bond guide.