The ERISA fidelity bond: who needs one.
ERISA section 412 requires people who handle plan funds to be bonded. Whether a health plan has to carry a bond depends mostly on how the plan is funded.
What the rule says.
Who Must Be Bonded
ERISA section 412 generally requires every fiduciary and every person who handles funds or other property of a plan to be bonded. The Department of Labor calls these people plan officials. Many small employers overlook this because the plan itself is run informally. Review who in your organization touches plan money, then confirm coverage with your insurance adviser and benefits counsel.
How Much
A plan official must be bonded for at least 10 percent of the funds he or she handles, with a minimum of $1,000 per plan. In most cases the most that can be required is $500,000 per plan official. Amounts are tied to the funds handled, so they can change as the plan grows. Revisit the bond amount each year and when plan funds or responsibilities change.
What It Covers
The bond protects the plan against loss from fraud or dishonesty. The plan is the named insured, and an insurer or surety provides the bond. The bond is not the same as insurance that protects the officials themselves. Read the policy or bond form and ask your insurance adviser what losses it pays for and who files a claim.
Handling Is The Trigger
A person handles funds when there is a risk the funds could be lost through that person’s fraud or dishonesty. A title alone does not create the duty. Look at what people can actually do, such as sign checks, move money, or approve payments, not only at their job titles. Counsel can help you decide who falls within the rule.
What plan sponsors can do.
Confirm How The Plan Is Funded
The Department of Labor has said the requirement does not apply to plans that are completely unfunded, meaning benefits are paid directly from the employer’s general assets. A plan that is insured, or that holds assets apart from the employer’s general assets, is not treated the same way.
List Who Handles Money
Identify who can move, sign for or control plan funds, including employee contributions and any plan bank account. Include payroll staff who deposit employee contributions, finance staff with signing authority, and any outside party with access to a plan account. Write down the list and update it when roles change.
Check The Bond Or Policy
Ask your advisor whether a bond exists, who is covered, and whether the amount matches the funds handled. Ask to see the bond or policy itself, not just a summary. Check the named insured, the covered period, the limit, and the list of covered people against the list you built.
Know The Exemptions
Governmental and church plans are outside ERISA Title I. Certain regulated financial institutions may also be exempt if they meet the conditions in the rule. Whether an exemption applies depends on the type of plan and the facts, so do not assume. Ask benefits counsel to confirm before you rely on one, and keep that conclusion in your records.
Three questions to settle.
Does Our Plan Hold Assets
Employee contributions and self-funded arrangements raise the question. Check the plan asset rules. The answer depends on the plan’s structure and on how contributions are handled. Ask benefits counsel to review the arrangement, and note how quickly employee money moves from payroll to the carrier or plan account.
Who Is A Plan Official
Name every person with handling duties and confirm each is covered. Revisit the list when someone joins, leaves, or changes duties. A short checklist in your onboarding and offboarding process helps keep the bond coverage current. Plan officials who handle funds generally need to be covered by a fidelity bond under ERISA, so the review is more than a courtesy. Counsel or an insurance professional can confirm who must be covered.
Is Our Fiduciary Insurance The Same Thing
No. Fiduciary liability coverage and a fidelity bond are different protections. Confirm which you have. Fiduciary liability coverage generally protects against claims of mismanagement, while a bond responds to fraud or dishonesty losses. Review both with your insurance adviser, since one does not replace the other.
Common Questions About ERISA Fidelity Bonds
Is a fidelity bond the same as fiduciary liability insurance?
No. The bond covers loss to the plan from fraud or dishonesty. Fiduciary liability coverage protects against claims of fiduciary breach.
Does a fully insured health plan need a bond?
It depends on whether anyone handles plan funds or property. Do not assume an insured plan is exempt. Ask your advisor to review how contributions move.
Does a bond apply if benefits come from general assets?
The Department of Labor has said completely unfunded plans, paid from the employer’s general assets, are outside the requirement.
Do governmental or church plans need one?
ERISA Title I does not apply to those plans, so the section 412 requirement does not either.
Does the bond cover the whole plan year?
Bonds are written for a term and should be reviewed at renewal for the persons and amounts covered.
Is this legal advice?
No. For your plan, involve your counsel or benefits advisor. We can help you organize your plan funding facts and questions.
Send us your renewal.
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The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
Laws and rules referenced
29 U.S.C. § 1112 — ERISA fidelity bond: at least 10% of the funds handled, generally $1,000 to $500,000.
This page is general information, not legal or tax advice. Rules change and facts matter, so confirm your situation with counsel or a qualified advisor.
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