What Is an ERISA Bond and What Does It Cover in PA?

If you’re involved in managing an employee benefit plan in Pennsylvania, you may have come across the term “ERISA bond.” But exactly what is an ERISA bond, and what does it cover? Let’s explore the ins and outs of ERISA bonds, their importance, and their specific application in the Keystone State.

Understanding ERISA Bonds

ERISA, which stands for the Employee Retirement Income Security Act, is a federal law that sets required standards for most retirement and health plans voluntarily established in private industry. An ERISA bond, also known as an ERISA fidelity bond, is a type of insurance required by this law to protect employee benefit plans from losses due to fraud or dishonesty.

What Does an ERISA Bond Cover?

An ERISA bond specifically covers losses resulting from acts of fraud or dishonesty by individuals who handle plan funds. These acts may include:

• Theft
• Embezzlement
• Forgery
• Misappropriation
• Wrongful abstraction
• Willful misapplication

It’s important to clarify that ERISA bonds do not cover losses due to poor investment decisions or general mismanagement. They are specifically designed to protect against criminal acts that could deplete plan assets.

ERISA Bond Requirements in Pennsylvania

While ERISA is a federal law, its requirements apply uniformly across all states, including Pennsylvania. Here are some key points to understand about ERISA bond requirements:

• Coverage Amount: The bond must be at least 10% of the amount of funds handled, with a minimum of $1,000 and a maximum of $500,000 (or $1,000,000 for plans that hold employer securities).
• Who Needs a Bond: Generally, anyone who handles funds or other property of the plan must be under bond. This typically includes the plan administrator and those responsible for managing plan assets.
• Approved Providers: A surety or reinsurer named on the Department of the Treasury’s Listing of Approved Sureties must issue the bond.
• No Deductibles: ERISA bonds cannot have a deductible. The entire amount of the bond must be available to cover potential losses.
• Annual Review: You should review the bond’s adequacy annually, and adjust the amount as required when the plan’s assets change.

What Amount of ERISA Bond Do I Need?

Determining the appropriate amount of ERISA bond coverage can be crucial for plan administrators in Pennsylvania. The Department of Labor notes that a bond must exist for each trustee, fiduciary, or named administrator equal to at least 10% of the total amount of funds. If the plan holds non-qualifying assets, the amount of the bond should be higher.

It’s always advisable to consult a legal professional or an experienced ERISA consultant to ensure you’re adequately covered.

ERISA Bond Insurance: More Than Just Compliance

While obtaining an ERISA bond is a legal requirement, it’s also a valuable form of protection for your employee benefit plan. ERISA bond insurance provides peace of mind for both administrators and plan participants, as the bond protects all their investments against potential losses due to fraudulent activities.

Moreover, having proper ERISA bond coverage can help you avoid potential penalties and legal issues. The Department of Labor can impose significant fines for non-compliance with ERISA bonding requirements.

ERISA Bonds vs. Fiduciary Liability Insurance

It’s crucial to understand that an ERISA bond is different from fiduciary liability insurance. While an ERISA bond protects the plan and its participants from losses due to fraud or dishonesty, fiduciary liability insurance protects the fiduciaries themselves from personal liability in case of breach of their fiduciary duties.

In Pennsylvania, as in other states, it’s often recommended that plan fiduciaries have both types of coverage for comprehensive protection.

The Importance of ERISA Bonds in PA

For employee benefit plans in Pennsylvania, ERISA bonds serve as a critical safeguard against potential losses due to fraudulent activities. They provide an essential layer of protection for plan participants and help ensure compliance with federal regulations.

If you’re managing an employee benefit plan in Pennsylvania, it’s crucial to understand your ERISA bonding requirements and ensure you have adequate coverage. Regular reviews of your bond amount, especially as your plan assets grow, can help you stay compliant and protected.

While ERISA bonds are a legal requirement, they’re also a valuable tool in maintaining the integrity and security of your employee benefit plans. If you have questions about ERISA bonds or need assistance with any aspect of employee benefit plan management, don’t hesitate to seek professional legal advice.

At Capitan Law, our ERISA lawyers have extensive experience with ERISA and employee benefits law. Our attorneys can help you understand the complexities of ERISA compliance, including bonding requirements, to ensure your plan and its participants are fully protected. Contact us online today or call us at (267) 419-7888 for a free consultation to discuss your specific needs and how we can assist you in safeguarding your employee benefit plans.