ERISA and Surety Bonds

Protect your employee benefit plan with an ERISA Fidelity Bond

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 of private pension and other employee benefit plans were being mismanaged and abused. 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.

What is an ERISA Fidelity Bond?

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.

Is an ERISA Bond the same thing as Fiduciary Liability Insurance?

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. Fiduciary liability insurance, on the other hand, 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.

Who must be bonded?

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.

How much coverage must the bond provide?

Generally, each person must be bonded in an amount equal to at least 10% of the amount of funds he or she handled in the preceding year. The bond amount cannot, however, 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 that hold employer securities. These amounts apply for each plan named on a bond.


More About the Employee Benefits Bond (ERISA, Surety)

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, they receive a payout from the insurance company. Likewise, if you fail to perform a service, like providing obligated employee benefits, the insurance company pays the affected employees.

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:

  • Qualifying assets include funds held in a financial institution, such as a bank, mutual fund, or insurance company.
  • Non-qualifying assets are tangible items, such as real estate, artwork, or collectibles.

Your veterinary practice needs to renew bonds as the values or employee benefits plan changes. An ERISA surety bond's cost depends on your veterinary niche, the bond's value, personal credit scores, and financial history.

Protect Your Employees Benefits With ERISA Surety Bonds

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.