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What Are ERISA Bonds?

ERISA is shorthand for the Employee Retirement Income Security Act of 1974, which was passed to protect employees and their beneficiaries against the loss of funds held in employer-sponsored retirement plans. One of the ways that protection is achieved is though the requirement of an ERISA bond, also known as an ERISA Fidelity Bond.

These bonds provide protection against financial loss resulting from the fraud or dishonesty of someone with fiduciary responsibilities. The U.S. Department of Labor, which administers ERISA, defines “fraud and dishonesty” as “larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion, willful misapplication, and other acts.”

Who Needs Them?

ERISA requires people who “receive, handle, disburse, or otherwise exercise custody or control of plan funds or property” to be properly bonded. ERISA defines “funds or property” very broadly, to include not only publicly traded securities such as stocks, bonds, mutual funds and so on, but also land and buildings, mortgages, and securities in closely-held corporations. Service providers to the plan may also need to be bonded if they handle or have access to the plan’s funds.

The Department of Labor has developed six questions or “tests” for determining which specific plan administrators/employees had the authority to handle or make decisions regarding retirement plan funds during the previous year and therefore need to be bonded.


These are the only exceptions to the ERISA bond requirement:

  • Church, government, and certain other retirement plans
  • Retirement plans of organizations in the highly regulated financial services industry
  • Completely unfunded employer-sponsored retirement plans

Other than these exempt plans, all employer-sponsored retirement plans must obtain an ERISA bond.

How Do They Work?

All funds in an employer-sponsored retirement plan are protected, whether they were contributed by the employer or employee, regardless of their form: cash, checks, or other property. Funds are covered from the moment they are received by the plan.

Each person subject to bonding must be covered for up to 10% of the funds they handled or had access to during the previous year—but not less than $1,000 or more than $500,000. The one exception to the $500,000 maximum coverage is for employee-sponsored retirement plans that include the company’s own securities. In such cases, the maximum coverage required is $1,000,000. This is the maximum amount available to cover the cost of claims.

If a plan official or other bonded individual (the principal in the bond agreement) causes a covered financial loss through fraud or dishonesty, the plan can file a claim on the bond. If the principal does not pay the claim once the surety determines that it’s valid, the surety will step up and pay it. The surety will then pursue the principal for full reimbursement.

What Do They Cost?

ERISA bonds don’t cost very much considering the amount of coverage involved, typically from a few hundred to perhaps a thousand dollars per year. The annual premium is calculated based on the class of business, dollar amount of coverage, and the number of employees covered by the bond.

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