If you manage a retirement plan like a 401(k), you’re probably familiar with compliance obligations. One requirement that often flies under the radar (until it’s a problem) is the ERISA bond.
Let’s get into what ERISA bonds are, why they exist, and what you need to know to make sure you’re covered properly.
What is an ERISA Bond?
An ERISA bond is a specific type of surety bond required under the Employee Retirement Income Security Act of 1974 (ERISA). It protects the retirement plan, not the employer or plan fiduciary, from losses caused by acts of fraud or dishonesty by the people who handle plan funds.
In simple terms, if someone with access to plan assets embezzles, steals, or otherwise misuses the money, the bond reimburses the plan participants. It’s a form of protection for employees’ retirement savings.
Important note: This bond does not protect the employer or the fiduciaries themselves. It protects the plan and the employees participating in it. That distinction matters when evaluating the level of coverage needed.
Who Needs to Be Bonded?
Any person who handles plan assets must be bonded. That typically includes fiduciaries, administrators, and anyone with authority over funds; writing checks, transferring money, or even disbursing loans.
If your company offers a 401(k) or other ERISA-qualified plan and someone on your team has access to those funds, you need a bond. Not having one is a violation of federal law and could lead to fines or further enforcement action.
How Much Coverage is Required?
ERISA requires a bond amount that equals at least 10% of the plan’s assets, with a minimum of $1,000 and a maximum of $500,000 per plan (or $1 million if the plan includes employer securities, like company stock).
For example, If your plan holds $2 million in assets, you need at least $200,000 in bond coverage.
It’s important to regularly review plan balances and update your bond coverage accordingly. If your plan grows, the bond should grow with it.
ERISA Bond vs. Fiduciary Liability Insurance
These two often get confused, but they’re not the same.
An ERISA bond is legally required and protects the plan. A fiduciary liability policy is optional and protects you as the fiduciary from lawsuits related to breaches of duty, errors, or negligence.
Both serve a purpose. But if you’re only going to carry one, ERISA compliance isn’t optional. You need the bond.
What to Know Before You Buy
ERISA bonds are not expensive, usually between $100 and $300 annually for most small to mid-sized plans. But not all bonds are created equal. Here are a few tips when looking for one:
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Make sure the bond provider is listed with the Department of the Treasury. This ensures the bond meets ERISA requirements and is enforceable.
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Avoid confusing ERISA bonds with insurance policies. If you’re buying coverage through a business insurance package, double-check that it’s a bond and not just a fiduciary policy.
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Review your plan’s asset mix. If your plan holds employer securities, you’ll need higher limits.
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Keep your bond updated. If your plan balance increases or you add new fiduciaries, you may need to amend your bond.
How to Get One
The process to secure an ERISA bond is relatively simple. Most bonding companies can handle it online or through a short form. You’ll need to provide:
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Name of the retirement plan
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Amount of assets in the plan
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Names of people who handle funds
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Whether or not the plan holds employer securities
From there, the bond is issued quickly, usually the same day.
Your insurance broker may be able to help you with this, but make sure they’re familiar with ERISA-specific bonding rules. If not, work directly with a bonding company that specializes in employee benefit plans.
Final Thoughts
An ERISA bond is one of those compliance items that’s easy to overlook until you’re audited. Fortunately, it’s also easy to fix. Coverage is affordable, the process is simple, and it’s an essential piece of protecting your employees’ financial future.
At Patriotic Insurance Group, we make it easy for New York businesses to stay compliant with ERISA requirements by offering trusted, Treasury-listed ERISA bonds tailored to your plan. Contact us today to get started and ensure your retirement plan is fully protected.
