In 2008, the Department of Labor issued “Field Assistance Bulletin 2008-04” (FAB), which provides the statutory and regulatory requirements for ERISA bonding. FAB defined who is exempt from the bonding requirement:
The bonding requirement does not apply to plans that are not subject to Title I of ERISA, for example, governmental plans, church plans, worker’s compensation plans, and excess benefit plans or to plans that are unfunded. A plan is unfunded if it pays benefits exclusively from the general assets of the employer or union. By definition, a plan is not considered unfunded, and will remain subject to the bonding requirement if:
- benefits are provided through insurance,
- contributions are made to – or benefits are paid from – a trust,
- employees contribute to the plan, or
- a separate bank account is maintained (or separate books are maintained to administer a separate fund out of which benefits are to be paid).
In other words, bonding requirements apply if employee contributions are made to an employee benefit plan. However, FAB clarifies that the Department of Labor will treat a Code § 125 Cafeteria employee welfare plans, as unfunded and thereby exempt from the bonding requirement; even though it includes employee contributions, as long as it satisfies the requirements of Technical Release 92-01. (i.e., the employee contributions are used within three months of receipt for payment of premiums as provided in § 2520.104-20 and § 2520.104-44). Based on these same terms Department of Labor exempts such Code § 125 affiliated welfare plans from the ERISA reporting requirements.
Please note, contributory employee welfare plans not associated with a Code § 125 plan remain subject to the bonding requirement.
Insured plans are also subject to the bonding requirement. FAB indicates that a bond is not required if no person “handles” funds of the plan; No bonding is required with respect to the bare existence of the contract obligation to pay benefits, nor the payment of premiums, or other payments made to purchase such benefits, directly from general assets.
Such insured arrangements would not normally be subject to bonding except to the extent that monies returned by way of benefit payments, cash surrender, dividends, credits or otherwise, and which by the terms of the plan belong to the plan (rather than to the employer, employee organization, or insurance carrier), were subject to “handling” by a plan official.