The Employment Retirement Income Security Act (ERISA) sets rules and standards of conduct for private-sector employee benefit plans and those that invest and manage their assets. The provisions of ERISA, which are administered by the U.S. Department of Labor, were enacted to address public concern that funds for private pensions and other employee benefit plans were being mismanaged and abused. One of ERISA's requirements is that a fidelity bond must cover people who handle plan funds and other property to protect the plan from losses due to fraud or dishonesty.
An ERISA Fidelity Bond is a type of insurance that protects the plan against losses caused by acts of fraud or dishonesty. Fraud and dishonesty include but are not limited to, larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion, willful misapplication, and other acts.
No. The fidelity bond required under ERISA specifically insures a plan against losses due to fraud or dishonesty (e.g., theft) by persons who handle plan funds or property. On the other hand, Fiduciary liability insurance insures fiduciaries, and in some cases, the plan, against losses caused by breaches of fiduciary responsibilities. Although many plan fiduciaries may be covered by fiduciary liability insurance, it is not required and does not satisfy the fidelity bonding required by ERISA.
Every person who "handles funds or other property" of an employee benefit plan is required to be bonded unless covered under an exemption under ERISA. ERISA makes it an unlawful act for any person to "receive, disburse, or otherwise exercise custody or control of plan funds or property" without being properly bonded.
Fidelity bonding is usually necessary for the plan administrator and those officers and employees of the plan or plan sponsor (employer, joint board, or employee organization) who handle plan funds by virtue of their duties relating to the receipt, safeguarding, and disbursement of funds.
Generally, each person must be bonded in an amount equal to at least 10% of the funds he or she handled in the preceding year. The bond amount cannot be less than $1,000, and the Department cannot require a plan official to be bonded for more than $500,000 or $1,000,000 for plans holding employer securities. These amounts apply to each plan named on a bond.
Bonds vs. Insurance
Surety bonds are slightly different from standard insurance policies. A client or third party receives the benefits of this bond in a payout, not the company taking out the bond. If a company files a claim against the insured’s bid bond, it receives a payout from the insurance company. Likewise, the insurance company pays the affected employees if you fail to perform a service, like providing obligated employee benefits.
While an insurance policy is a contract between a business and the insurance company, a surety bond is a contract between the bonded company, its clients, and the company providing the cover.
Coverage Amounts
As for performance bonds (guaranteeing that one party performs as agreed), the surety must value 10% of the funds handled for every person who manages employee benefits funds. If your plans include non-qualifying assets, the 10% applies to the higher rate:
Your veterinary practice needs to renew bonds as the values or employee benefits plan changes. The cost of an ERISA surety bond depends on your veterinary niche, the bond's value, personal credit scores, and financial history; however, typically an ERISA bond is very inexpensive and may only cost a few hundred dollars and last three years.
Vetinsure offers these bonds (ERISA, Surety) so that you can comply with regulations and protect your employees' benefit plans. You can reach our professionals at (800) 272-1249 for help with your veterinary business insurance and bonding needs.