Understanding ERISA Fidelity Bonds and Fiduciary Liability Insurance

Posted on Oct 13, 2022

The Employee Retirement Income Security Act (ERISA) is a federal law that sets rules and standards of conduct for most voluntarily established retirement and health plans in private businesses. These rules are intended to protect individuals who participate in these plans, and include regulations concerning the communication of plan information, vesting, benefit accrual and funding, grievance and appeals processes, and the fiduciary responsibilities for those who manage and control plan assets.

Fidelity bonds are an ERISA requirement for people who manage plan funds and other property. These bonds protect the plan from losses due to fraud or dishonesty, which may include theft, embezzlement, forgery, misappropriation, and other acts. Fiduciary liability insurance, sometimes confused with a fidelity bond, insures fiduciaries (and sometimes the plan) against losses caused by breaches of fiduciary responsibilities. An important difference is that fidelity bonding is required by ERISA, but fiduciary liability insurance is not.

It's important for employers to understand who must have fidelity bonding coverage. For example, fidelity bonding is usually required for the plan administrator, officers and employees of the plan or plan sponsors who handle plan funds, and service providers whose duties include access to the plan funds. Basically, bonding is necessary for anyone whose responsibilities or activities could cause a loss of plan funds or property due to fraud or dishonesty, whether they have direct access to cash or checks, the authority to sign checks, negotiate plan property, direct disbursements, or the power to transfer funds from the plan to themselves or a third party.

Watch this brief video for four key takeaways about fidelity bonds and how they differ from fiduciary liability insurance, coverage requirements, and how employers can pay for this coverage.

This material is provided for informational purposes only, and is not intended as authoritative guidance, legal advice, or assurance of compliance with state and federal regulations.