1st & 3rd Party ERISA Bond
ERISA requires that employee benefits plans have a fidelity bond in place to protect plan assets against fraudulent and dishonest acts.
What coverage is provided by an ERISA bond?
An ERISA fidelity bond provides coverage for loss of funds and other property resulting directly from fraudulent or dishonest acts committed by a trustee, officer, employee, administrator or manager of any employee welfare or pension benefit plan who is employed by the plan sponsor. Coverage is not provided for independent contractors.
What types of employee benefit plans require an ERISA bond?
The term ’employee benefit plan’ applies to all employee welfare and employee pension benefit plans.
Employee welfare benefit plans include plans, funds, or programs that provide medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services.
Employee pension benefit plans include plans, funds, or programs that provide retirement income to employees or result in a deferral of income by employees for periods extending to the termination of covered employment or beyond, such as 401K plans.
What is the difference between an ERISA bond and fiduciary liability insurance?
While both insurance products are associated with employee benefit plans, they provide different coverage. ERISA bonds are mandatory and provide protection solely to the plans (not the fiduciaries) against fraudulent or dishonest acts committed by persons who handle plan funds. Therefore, if an employee misappropriates funds from an employee benefit plan, the ERISA bond will pay back the loss up to the bond amount, subject to the bond rules and conditions.
Fiduciary liability insurance is an optional coverage which generally provides protection to entities, their employees and benefit plans against allegations of violation of obligations, responsibilities or fiduciary duties imposed on fiduciaries of employee benefit plans. Fiduciary liability insurance therefore provides protection against allegations such as “mismanagement” of a benefit plan and generally does not provide coverage against criminal or fraudulent acts or for willful violation of the law by an insured.