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Protecting Your Business: Understanding ERISA Bond Coverage

Richelle Smith Headshot
by Richelle Smith, Director, Bonds Small Business, Main Street America Insurance •

As a business owner, it’s important to understand the insurance requirements that apply to your company as well as the various types of bonds your business may need.

One specific requirement is ERISA bond coverage, which is a type of insurance that protects employee benefit plans from fraud or dishonesty. If your company provides its employees with a pension or 401(k) plan, the IRS will require you have an ERISA Bond.

In this simple guide, we'll delve into the fundamentals of ERISA bond coverage and why it’s important for your business.

What is ERISA Bond Coverage?

ERISA stands for the Employee Retirement Income Security Act, which is a federal law that sets standards for private employee benefit plans. This includes retirement and pension plans, health insurance plans, and other types of employee benefits. ERISA bond coverage is a kind of insurance that is necessary by law for all employee benefit plans under ERISA. It protects the plan from losses caused by fraud or dishonesty on the part of plan administrators.

Who Needs ERISA Bond Coverage?

  • ERISA bond coverage is mandatory for all employee benefit plans under the ERISA act.
  • This requirement applies to plans sponsored by private employers, government entities, and churches.
  • Anyone who is responsible for managing the funds or assets of an employee benefit plan must have a bond, unless they meet the criteria for exemption under ERISA.
  • The only exceptions are for plans that are fully funded by insurance contracts or solely funded by the employer.

What Does ERISA Insurance Coverage Protect Against?

ERISA bond coverage protects against losses caused by fraud or dishonesty on the part of plan officials or fiduciaries. Examples include:

  • Theft, embezzlement, larceny and forgery
  • Wrongful abstraction, wrongful conversion, willful misapplication, and other illegal acts
  • Errors or omissions

How Much Coverage is Required?

The amount of ERISA bond coverage required depends on the size of the plan. For plans with fewer than 100 participants, the minimum coverage required is $1,000. For plans with 100 or more participants, the minimum coverage required is 10% of the plan’s assets, up to a maximum of $500,000. Additional coverage may be required if the plan includes nonqualifying assets.

By understanding ERISA bond coverage requirements and ensuring that your employee benefit plan is properly covered, you can protect your business and your employees from financial losses.

If you need help getting ERISA bond coverage find an agent near you today.