The Employee Retirement Income Security Act (ERISA) of 1974 protects the retirement assets of Americans. The Act sets rules and standards of conduct for private sector employee benefit plans, and those that invest and manage their assets. An ERISA bond, also called an ERISA fidelity bond, is a special kind of bond that protects employee benefit plans from losses caused by dishonesty or fraud (larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion, willful misapplication, and other acts).
The ERISA bond coverage is usually determined as follows:
- Each person having access to funds of an employer-sponsored retirement plan must be covered for at least 10% of the amount they handled or had access to in the previous year.
- In most cases, coverage cannot be less than $1,000 or more than $500,000.
- The maximum coverage required extends to $1 million when the employer-sponsored plan includes securities issued by the employer.
It is unlawful for any person to “receive, handle, disburse, or otherwise exercise custody or control of plan funds (stocks, bonds, mutual funds, or ETFs) or property (land, buildings, mortgages) without being properly bonded.
ERISA bonds must be issued by an independent insurance company and acquired through an independent insurance broker.