The Employee Retirement Income Security Act of 1974 (ERISA) requires that every person who handles plan assets to be bonded to protect the plan from losses due specifically to fraud or dishonesty. Generally, the bond should cover an amount equal to at least 10% of the amount of plan assets held as of the beginning of the plan year. The bond cannot, however, be less than $1,000, and the maximum required is $500,000 ($1,000,000 for plans that hold employer securities).

While not typically an issue for larger plans (>$5,000,000 in assets) as they likely have their coverage set at the maximum amount required by ERISA, we do come across smaller sized plans that fail to monitor their fidelity bond on an annual basis for the minimum coverage required by law. At the beginning of each plan year, the plan administrator should review the fidelity bond to ensure the bond continues to insure the plan for at least the required minimum amount.

We see fidelity bonds with both fixed amounts and more generic language that allows the bond to remain effective beyond one year. As an example, a bond that covers “10% of the plan’s assets at the beginning of the plan year or $500,000, whichever is less, but in no event less than $1,000” may be preferable over a fixed amount of coverage. Small plans with a fixed amount must monitor their policy each year in the event plan assets have increased; whereas, a policy with the example language above could be applied indefinitely.

Contact the professionals at Gilliam Bell Moser LLP for additional information.

Eric Grant, CPA