Fidelity Bonds
DOL regulations require all Plans to maintain an ERISA Fidelity Bond. This bond:
Our Colonial Surety Company Partnership
Although there are many insurance carriers where you can obtain an ERISA Bond, our clients have had positive experiences with Colonial Surety Company.Some carriers, including Colonial Surety, offer a provision to automatically increase the bond’s coverage to ensure that your Plan is properly covered while the policy is in effect. This is called an auto-inflation or extended coverage provision and is helpful so that you will not need to deal with this every year. If you are purchasing the bond for a startup plan, you can select the lowest coverage available ($1,000 of qualifying Plan assets and $0 for non-qualifying assets) but add the auto-inflation guarantee.
Furthermore, some carriers may recommend Fiduciary Liability insurance. An ERISA Fidelity Bond is not the same thing as Fiduciary Liability Insurance. An ERISA Fidelity Bond is required by the DOL to insure the plan, whereas Fiduciary Liability Insurance is an added coverage to protect the fiduciary.
ERISA Fidelity Bond vs. Fiduciary Liability Insurance
I am a small business owner sponsoring a 401(k) retirement plan. Are my personal assets at risk? What kind of coverage can I get with Fiduciary Liability Insurance and how does it differ from the required ERISA Fidelity Bond?
Fiduciary responsibilities are dictated by the standards of ERISA (The Employee Retirement Income Security Act) and other IRS/DOL guidelines. ERISA requires every person who “handles funds or other property” of an employee benefit plan to be bonded with an ERISA Fidelity Bond to insure the plan against losses due to fraud or dishonesty. Fiduciary Liability Insurance typically insures the fiduciaries (and in some cases the plan) against losses caused by a breach of fiduciary responsibility. Fiduciaries are personally liable for losses incurred by a plan due to their breach. Although fiduciary liability insurance isn’t required by ERISA, as is a bond, every fiduciary of an ERISA can obtain coverage as a safety net. The coverage provided in a policy can differ significantly. The plan itself can purchase liability insurance for its fiduciaries or the employer and/or fiduciary can purchase. Executives who are expected to assume responsibility over the company’s benefit plans should consider incorporating fiduciary liability insurance as part of their overall compensation package.
ERISA Fidelity Bond
Required by the DOL
Insures the plan
Protects from risk of loss due to fraud or dishonesty
Obtained by surety or reinsurer that is named on the Department of the Treasury’s listing of approved suretys
The plan can pay for the bond using the plan’s assets
Fiduciary Liability Insurance
Not required by the DOL
Insures fiduciaries (and sometimes the plan)
Protects against losses caused by breach of fiduciary responsibility
Obtained from most insurance providers / agents
The plan can pay for the insurance if the policy permits recourse by the insurer against a breaching fiduciary; nonrecourse riders are purchased with non-plan assets