There are two common insurance policies that relate to employee benefit plans: an ERISA fidelity bond and fiduciary liability insurance. Both help lower risk but only one of the policies – the ERISA fidelity bond – is required by the Employee Retirement Income Security Act (ERISA) administered by the Department of Labor (DOL).
An ERISA fidelity bond protects the employee benefit plan against losses due to fraud or dishonesty by persons who handle plan funds. When reviewing your policy, be sure to look for those key words – fraud and dishonesty – as well as the name of the employee benefit plan. The policy must identify the plan as an insured party on the bond. Also note that deductibles or similar features are prohibited.
Fiduciary liability insurance differs in that it does not protect losses due to fraud or dishonesty, rather losses caused by breaches of fiduciary responsibilities. This insurance insures fiduciaries, and in some cases the plan, and is not required by DOL.
It is also important to consider the amount of coverage that is required by ERISA. Generally, the fidelity bond must equal at least 10% of the amount of funds handled in the preceding year. The bond cannot be less than $1,000 and does not have to be greater than $500,000. With plans that hold employer securities, the maximum increases up to $1,000,000.
As part of our audit procedures, we will review copies of the plan insurance policies to determine if the proper coverage is in place. It is not uncommon to discover plans with general crime policies or fiduciary liability coverage which appear to satisfy the requirements. Be sure to read your insurance policies to ensure your plan is properly covered.
Joe Bang, CPA