ERISA Bonding

Definition

Requirement that applies to individuals having control or authority over the assets of plans that are subject to ERISA - or generally handle plan assets- to protect the plan against fraud. Under this requirements, such individuals are bonded by a corporate surety company.

Generally, the individual must be bonded for at least 10% of the asset he/she handles.

Under ERISA, a plan administrator, officer, or employee who "handles" funds or other property of a plan, is required to be bonded,  whenever his duties or activities with respect to the funds or other property are such that there is a risk that such funds or other property could be lost in the event of fraud or dishonesty on the part of the  individual, acting either alone or in collusion with others.

Plans that cover only the business owner/s are not usually subject to bonding requirements DOL Reg. §2510.3-3

Referring Cite

ERISA §412(a), DOL  § 2580.412-6.

Additional Helpful Information

  • The amount of the bond depends on the amount of ``funds'' ``handled'', and shall be sufficient to provide bonding protection against risk of loss through fraud or dishonesty for all plan funds, including other property similar to funds or in the nature of funds.
  • The term ``funds'' shall be deemed to include and be equivalent to ``funds and other property'' of the plan ( see ``funds and other property'' explained below)
  • With respect to any item of ``funds or other property'' which does not have a cash or readily ascertainable market value, the value of such property may be estimated on such basis as will reasonably reflect the loss the plan might suffer if it were mishandled.

(29 CFR 2580.412-13)

 

The term ``funds or other property''

  1. Is intended to encompass all property which is used or may be used as a source for the payment of benefits to plan participants.
  2. Does not include permanent assets used in the operation of the plan such as land and buildings, furniture and fixtures or office and delivery equipment used in the operation of the plan.
  3. Does include all items in the nature of quick assets, such as cash, checks and other negotiable instruments, government obligations and marketable securities.
  4. Also includes all other property or items convertible into cash or having a cash value and held or acquired for the ultimate purpose of distribution to plan participants or beneficiaries.
  5. In the case of a plan which has investments, this would include all the investments of the plan even though not in the nature of quick assets, such as land and buildings, mortgages, and securities in closely held corporations. However, in a given case, the question of whether a person was ``handling'' such ``funds or other property'' so as to require bonding would depend on whether his relationship to this property was such that there was a risk that he, alone or in connivance with others, could cause a loss of such ``funds or other property'' through fraud or dishonesty

(29 CFR 2580.412-4)