A fidelity bond is required as soon as you start your 401(k) plan. ERISA requires every person who handles funds or other property for an employee benefit plan, including 401(k) plans, to be bonded.
One may also ask, who is required to have a fidelity bond?
One of ERISA’s requirements is that people who handle plan funds and other property must be covered by a fidelity bond to protect the plan from losses due to fraud or dishonesty. This publication highlights key elements that employers and other plan sponsors should know about ERISA’s fidelity bonding requirements.
Furthermore, what happens if a 401k plan does not have a fidelity bond?
Without a Fidelity Bond in place, the Plan would be out of compliance with ERISA. Also, the Plan named fiduciary/trustee could be held personally liable for any losses that occur. Fidelity bonds are easy to put in place, are not expensive and can be paid from Plan assets if needed.
What is the difference between an ERISA bond and a fidelity bond?
An ERISA bond covers employees who manage or have fiduciary responsibility for the company’s retirement fund. A fidelity bond covers employees who may not be able to receive a bond due to concerns with their personal background or employment history.
What happens if you don’t have ERISA bonds?
Q: What happens if there’s no ERISA bond coverage for the plan? A: If there’s a loss as a result of fraud, dishonesty, theft, or some other criminal act, then the fiduciaries will have to pay out-of-pocket for the losses. In other words, they will become personally liable for the losses.
What is the cost of a fidelity bond?
The median cost of a fidelity bond with a $1 million policy limit, our most popular limit, is $1,054 annually, or less than $90 per month. A fidelity bond with a limit of $100K costs only $280 per year, or less than $25 per month.
What type of insurance is fidelity bond?
A fidelity bond is a form of business insurance that offers an employer protection against losses that are caused by its employees’ fraudulent or dishonest actions. This form of insurance can protect against monetary or physical losses.
How do I get a fidelity bond?
While you can apply for a fidelity bond if you are an employer, you can also recommend that your employee purchase a fidelity bond policy. Self-employed individuals cannot quality for a fidelity bond. Most bonds are obtained through a surety company.
How much is a 401k fidelity bond?
General Rule. The general requirement is that a plan must have a fidelity bond equal to at least 10% of the total assets in the plan. Under this general rule, the minimum bond amount is $1,000 (covers you on total assets up to $10,000), and the maximum bond is $500,000 (for plans with assets of more than $5 million).
Is this bond required because more than 5% of the plan assets are non qualifying?
The amount of the required fidelity bond is 10% of the amount of plan funds the person handles. … If a plan has more than 5% in these non-qualifying assets, the company needs either a bond amount equal to 100% of these assets or it needs to arrange for an annual full-scope CPA audit.
What does a fiduciary liability policy cover?
Fiduciary liability insurance is designed to protect the business from claims of mismanagement and the legal liability arising out of their role as fiduciaries. A fiduciary liability policy covers associated legal costs to defend against claims of errors and a breach of fiduciary duty.