Things to Know Regarding the 401K Fidelity Bond

It was in the year 1974 that the ERISA or the Employee Retirement Income Security Act was actually enacted to regulate various types of benefit plans for the employees. The ERISA section 412 along with other regulations require that each fiduciary of that worker benefit plan and every person handling the funds or other property need to be bonded.

The bonding requirements of the ERISA are needed to protect the benefit plans from risk of such loss as a result of fraud or dishonesty of the people who handle those funds or any other property. Persons who are going to handle the property or funds of the employee benefit plan are called plan officials in the ERISA. The Act demands that there must be a fidelity bond that should be placed to cover such fiduciary or the ones responsible in managing the plan and also the individuals who handle those funds or a property of the plan. Those fidelity bonds are there to provide protection to the plans from fraud or dishonesty which are committed by the people who are actually associated with them.

It is necessary that such plan official be bonded for 10 percent of the amount of the funds which one handles. In a lot of cases, the largest bond amount which can be demanded under ERISA with respect to a plan official is $500,000 for each plan. But, higher limits may also be purchased. But, there is a maximum bond amount of a million dollars for the plan officials of those plans which hold the employer securities.

You must know that such employee benefit plans with more than 5 percent of non-qualifying plan assets that are held in the limited partnerships, the mortgages, artwork, collectibles, real estate or securities of such closely-held companies and they are also held outside the regulated institutions such as the registered broker-dealer, the bank, insurance company or other kinds of organizations that are actually authorized in serving as trustee for the retirement accounts, plan sponsors should be doing one of these. One needs to make sure that the bond amount is 100 percent of value of those non-qualifying assets or one can also arrange for such annual full-scope audit in which the CPA is going to physically confirm the existence of those assets at the start and the end of that plan year.

The 401K has actually partnered with the Colonial Surety Company which is a leader of ERISA or 401K fidelity bonds. Actually, they are a national insurance company that is able to render services to all 50 states with their license and in all of the US territories and they have been providing such insurance products for several decades now. They are surely the biggest direct seller of such fidelity bonds in the US.