The US Department of Labor requires organizations that provide pension benefit plans to their employees to have a fidelity bond. When purchasing through Jet Insurance Services, companies can ensure they are obtaining the ERISA bond for the proper regulatory amount at a low cost.
The ERISA Bond is required by federal law under the Employee Retirement Income Security Act to protect employee retirement plan participants from fraudulent or dishonest acts committed by any plan official. The plan official (sometimes called a fiduciary) is the person or persons handling plan funds and property. The US Department of Labor makes it mandatory that all plan fiduciaries are covered by a fidelity bond.
With Jet, you have the option to cover all your fidelity bond requirements under one bond form. Or you can elect to keep them separate. Either way, the bond process never takes longer than a couple of minutes.
The cost for an ERISA bond at Jet is just a small percent of the required bond amount. Typically these bonds are purchased in three-year increments. For example, if the required bond amount is $250,000, then the cost of the bond is $325 for a three-year term.
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With Jet, the bond premium can be paid monthly. The amount would be automatically withdrawn from the credit card provided.
The good news is Jet can assist in determining the bond amount based on the most current 5500 public filings. You can read the rules here or give us a call at (855) 296-2663 to discuss.
The ERISA act uses plan assets as the to determine an adequate bond amount. There are two important distinctions in how to calculate the bond amounts: qualified and non-qualified assets.
Most plans only have qualified assets. These are assets held by financial institutions like banks, insurance companies, and mutual funds, i.e. third-party entities that handle investments. The bond amount needs to be 10% of the total assets handled.
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If non-qualified assets exist, then the calculation for the bond amount changes slightly. The amount required is whichever is higher: 10% of the total plan assets or 100% of the value of the non-qualified assets. Non-qualified assets are items such as employer securities, real estate, personal property, etc.
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There is a minimum bond amount required of $1,000 per plan. For plans with qualified assets only, the bond amount maximum is $500,000. However, for plans with hold employer securities, the maximum amount is $1,000,000.
There are special cases where the department of labor may require a higher amount. Plan administrators can opt to bond at an amount higher than the requirement, but never lower.
For new plans, an estimate of the total assets for the upcoming year can suffice in determining the bond amount needed. If you lack the experience to estimate the bond amount the Code of Federal Regulations provides some insight. Simply put it would be 10% of the total yearly contributions per participant multiplied by the number of participants in the plan.
Organizations with multiple individuals handling funds or other property will need to be properly bonded. The Department of Labor has a pdf that can explain more titled Protect Your Employee Benefit Plan with an ERISA Fidelity Bond that explains details you can review. What you need to know is that you do not need a bond for each individual or to list (schedule) each person on a bond form. Jet's bond automatically covers all plan trustees to fulfill the bond requirement.
No single bond for a single plan should exceed the maximum limits unless required by the Department of Labor. So if you have a bond for over the required limit for a single plan to cover each individual you may be paying too much for your surety bond.
If one bond is used for multiple plans than the bond limit may exceed the $500,000 or $1,000,000 maximum limit. At Jet, we advise obtaining one bond for each plan.
The ERISA Act requires the fidelity bond attached to employee benefit plans as financial protection for the employee’s benefits should the plan administrator (fiduciary) cause losses out of fraudulent or dishonest actions.
With a surety bond company involved, like Jet, damaged parties can receive a payout whether or not the company providing the plan has the capability to do so. The surety company is legally obligated to pay out verified claims. With this fidelity bond requirement, federal lawmakers provide public protection without adding any additional costs to the federal government.
Bonds are a standard way to protect victims with guaranteed financial recompense. When dealing with large sums of money, like what is found in pension accounts, individuals can be tempted to embezzle.
It makes sense why a high percentage of non-qualified assets require larger bond amounts, as these assets are less secure than those held by banks or other financial institutions.
Not all plans are required to carry the fidelity bond. The following list is exempt:
Jet only needs some basic information and payment. Takes about 2-3 minutes online to get your bond. The bond form will be available immediately after that for download.
The premium rate is a set amount based on the bond amount required. If you need a bond for multiple plans you can either purchase them individually or get one bond to cover them all. Call us at (855) 296-2663 with any questions. We can send you a link to purchase the bond following a phone call as well.
No, you do not need to file the bond, just hold onto it somewhere safe. When completing your 5500 filing you will need to report the bond amount.
If you purchased a three-year term for your plan, Jet will notify you a couple of months prior to the bond’s expiration date. All you need to do is make a payment. We will check the 5500 filing to make sure the bond amount is compliant for the start of the next term. You will need to confirm the amount. Once purchased you will receive an updated bond copy for your records.
For those paying monthly, Jet will send a notice to you at the three-year mark informing you what the new monthly payment for the bond amount is needed. You can adjust the bond amount as needed or accept the rate and that is it! Bond payments will continue as scheduled at the appropriate amount from there.
If all plan participants receive what is promised by the plan there will never be an issue. Plan administrators, the fiduciaries, must manage funds appropriately and make payments to beneficiaries. Here is a quick list of the “to-do’s”:
Plans may utilize third-party plan administrators to manage the plan. This decreases the risk as these professionals are experienced in plan management and are less likely to create an issue that ends in a bond claim when compared to individual business owners.
Purchasing fiduciary liability policies offers coverage for errors and mistakes made by a plan administrator to cover the cost of defense. This cover is excluded from most business owners' policies and, be warned, some agents will try to upsell plans administrators to get this coverage. Liability coverage is only for accidental mistakes, fraudulent and dishonest acts are excluded and that is where the bond provides coverage.
Having a profit-sharing component as part of the plan increases the risks of a bond claim as it is based on the employer's contribution not just on participant contributions.
Non-qualified assets also increase the risk to the fidelity bond. These non-qualified assets are not easily liquified, some are privately held and there can be additional difficulty to determine value when definite amounts must be paid to participants..
ERISA bonds are in a class called fidelity bonds which are sometimes referred to as dishonesty bonds. Contact Jet immediately should an issue with a claim arise. Jet is partnered with Lexington National Insurance Company to offer these bonds and can facilitate any assistance possibly mitigate damages.
A claim can be made up to one year from the date of the infraction as it may take some time for the discovery to occur. However, a sworn proof of loss statement must be submitted within 120 days.
The surety company that issued the bond has the right to go after the person that caused the loss (fiduciary) to compensate for any losses once paid out. That is the nature of fidelity coverage and makes it very different in that way from types of insurance. Since most of these situations would be criminal embezzlement, collection is probably unlikely. Thus why there are premiums that have to be paid to get plans covered.