Things to Know Regarding the 401K Fidelity Bond
It was in the year 1974 that the ERISA or the Employee Retirement Income Security Act was actually enacted to regulate various types of benefit plans for the employees. ERISA section 412 and the regulated regulations require that the fiduciary of such employee benefit plan and each person who manages the funds or a property of another must be bonded.
Such bonding requirements of the ERISA are required for the protection of the benefit plans from such risk of loss because of dishonesty or fraud of individuals who are handling those funds or any other property. The persons who would handle the funds or property of an employee benefit plan are known as plan officials in the ERISA. The Act demands that there must be a fidelity bond that should be placed to cover such fiduciary or the ones responsible in managing the plan and also the individuals who handle those funds or a property of the plan. Such fidelity bonds are actually intended to protect those plans from dishonesty or fraud committed by those individuals who are associated with them.
It is required that the plan official be bonded for at least ten percent of the amount of funds that one handles. In a lot of cases, the largest bond amount which is necessary under the ERISA is $500,000 for every plan. But, higher limits may also be purchased. But, there is a maximum bond amount of a million dollars for the plan officials of those plans which hold the employer securities.
You must know that such employee benefit plans with more than 5 percent of non-qualifying plan assets that are held in the limited partnerships, the mortgages, artwork, collectibles, real estate or securities of such closely-held companies and they are also held outside the regulated institutions such as the registered broker-dealer, the bank, insurance company or other kinds of organizations that are actually authorized in serving as trustee for the retirement accounts, plan sponsors should be doing one of these. One would be to ensure that the bond amount is equal to a hundred percent of the value of such non-qualifying assets or one may arrange for the annual full-scope audit, the CPA would physically confirm the presence of the assets at the beginning as well as the end of the plan year.
The 401K has actually partnered with the Colonial Surety Company which is a leader of ERISA or 401K fidelity bonds. They are a popular national insurance company that functions in all 50 states and other US territories and they have already been offering insurance products since the year 1930. They are actually the biggest direct seller of fidelity bonds in the US.