What You Must Know About the 401K Fidelity Bond
It was in the year 1974 that the ERISA or the Employee Retirement Income Security Act was actually enacted to regulate various types of benefit plans for the employees. The ERISA section 412 along with other regulations require that each fiduciary of that worker benefit plan and every person handling the funds or other property need to be bonded.
The Act’s bonding requirements are necessary for protecting the benefit plans from risk of loss because of dishonesty or fraud on the part of the individuals who are handling the funds or any other property. The persons who would handle the funds or property of an employee benefit plan are known as plan officials in the ERISA. The Act certainly demands that there should be fidelity bond that must be placed to be able to cover the fiduciary or the ones responsible when it comes to managing the plan and the people who are going to handle the property of the plan and the funds. Such fidelity bonds are actually intended to protect those plans from dishonesty or fraud committed by those individuals who are associated with them.
It is necessary that such plan official be bonded for 10 percent of the amount of the funds which one handles. In a lot of cases, the largest bond amount which can be demanded under ERISA with respect to a plan official is $500,000 for each plan. But, higher limits may also be purchased. A maximum bond amount of $1,000,000 dollars for those plan officials of plans holding the employer securities is implemented.
Know that the employee benefit plans with over five percent of such non-qualifying plan assets which are held in limited partnerships, collectibles, artwork, real estate, mortgages or the securities of the closely-held companies and they are held outside of such regulated institutions like the bank, registered broker-dealer, insurance company or other organizations which are authorized to serve as trustee for those individual retirement accounts, those plan sponsors must do one of these things. One needs to make sure that the bond amount is 100 percent of value of those non-qualifying assets or one can also arrange for such annual full-scope audit in which the CPA is going to physically confirm the existence of those assets at the start and the end of that plan year.
401K has worked together with Colonial Surety Company that is recognized as a leader in 401K fidelity bonds or ERISA fidelity bonds. They are actually a national insurance company which is licensed in all fifty states and also territories of the US and they have been providing insurance products since 1930. They are actually the biggest direct seller of fidelity bonds in the US.