Under Section 412 of The Employee Retirement Income Security Act of 1974 (ERISA), it is stated that:
“Every fiduciary of an employee benefit plan and every person who handles funds or other property of such plan shall be bonded.”
Under ERISA, a “fiduciary” is defined as a person who “(i) exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) has any discretionary authority or discretionary responsibility in the administration of such plan…” (ERISA, Sec. 412, U.S. Code 1002(21)(A)
Generally, “every person who handles funds or other property” of an employee benefit plan is required to be bonded; this includes Fiduciaries that handle funds. These people, referred to as “plan officials”*, must be bonded for at least 10 percent of the amount of the funds he/she handles, to a maximum of $500,000 per plan. If the plan holds employer securities other than through a pooled investment vehicle, a max of $1,000,000 per plan is required. Minimum bond amount is $1,000.
It is possible for the DOL to impose a bond greater than the $500,000/$1,000,000 maximum, it can be as much as 10% of the funds handled. However, this can only be done after notice and an opportunity for hearing is provided; see ERISA §412, DOL Reg. §§ 2580.412-1 through -36, and 2550.412-1.
*”Plan officials” include the plan administrator, and the plan sponsor’s employees that handle plan funds (i.e. have authority to sign checks, and/or supervisory or decision-making authority, have physical contact, the power to transfer, and/or disbursement authority). Also included are the plan’s trustee(s) and (if applicable) the company officers. “Plan officials” may also include unrelated third-parties (i.e., service providers) that have access to plan funds or whose decisions could pose a risk of loss through fraud or unethical conduct.
