ERISA / 401k / Pension Plan Bonds
PLEASE NOTE THAT WE CANNOT PROVIDE
ERISA BONDS IN ALASKA, CONNECTICUT, HAWAII,
NEW HAMPSHIRE AND MASSACHUSETTS.
What does ERISA stand for?
Employee Retirement Income Security Act of 1974
What is an ERISA bond?
The ERISA act requires that a bond is aquired by every person who handles property or funds of an employee benefit plan. The minimum amount of the bond is $1,000 and the maximum is $500,000; however, the amount of the bond is set at 10% of the amount of the funds or property handled by the plan during the year.
The exception to these guidelines is when a plan holds employer securities, as defined by section 407(d)(1) of the ERISA act. In that scenario, the maximum amount for the bond is $1,000,000.
Who uses an ERISA bond?
There are three main parties involved in an ERISA bond: the sponsor, the trustee, and the participant.
The sponsor is the organization or employer that develops the ERISA plan. The trustee is the individual (typically an employee of the sponsor) who oversees the plan. While the trustee might generally hire third party consultants to perform specialized tasks, the trustee is responsible for maintaining the plan.
The participant is the individual who invests money in the plan.
A fourth party, the investment manager, is sometimes hired to provide advice regarding investment. These managers are given discretion to invest or access assets.
Note: If a plan has more than 5% non-qualified assets, the plan must be bonded for 100% of those non-qualified assets and still not for less than 10% of all plan assets. Trust deeds, collectibles, limited partnerships, real estate, and interest in closely held companies all qualify as non-qualified assets.
Assets held by a bank, broker, or insurance company are considered qualified assets.