Phil Pavarini is a licensed insurance producer and is compensated when a bond is placed through this site. This page is general information, not legal, tax or fiduciary advice, and it is not a substitute for reading your plan document or contract or for advice from your own counsel. Figures shown are current as of the date on this page.
This is usually a short process. A standard ERISA bond is normally written without a personal credit check, financial statements or an underwriting call, so it is often finished quickly.
The work is not in the buying. It is in getting the amount right before you buy and in checking the form after, because a bond can be issued promptly and correctly by the carrier and still fail to satisfy section 412 if the plan is not named on it.
What to have ready#
- The exact legal name of the plan, as it appears on the plan document and on the Form 5500. Not the shorthand everybody uses internally.
- The bond amount, being 10 percent of the highest funds handled last plan year, floor $1,000, cap $500,000, or $1,000,000 if the plan holds employer securities. Working it out
- The plan year start date, so the bond term lines up with the year the amount was calculated for.
- Who is covered, which for most plans is best expressed as a class rather than a list of names.
Notice what is not on that list: financials, tax returns, a personal guarantee, or a credit authorization. For a standard ERISA bond those requests are unusual. If you are being asked for them, ask why, and confirm you are buying an ERISA fidelity bond rather than a different product. Very large bonds and unusual plans are the common exceptions.
Choosing the term#
One, two or three years. Three is usually the best value, and it also removes two opportunities for the bond to lapse quietly between a renewal notice going to an old email address and anybody noticing.
The argument against a long term is that renewal notices are the main thing that prompts sponsors to recalculate. Two ways to deal with that: ask for an inflation guard provision, which raises the amount automatically as the plan grows and is expressly permitted, or put the recalculation on the same calendar entry as the start of your plan year. Do one of them. A three year bond with neither is how a plan ends up bonded at its 2023 amount in 2026.
Know the amount you need? Apply for this bond, or read the full bond details.
The five things to check when the bond arrives#
Read the actual bond form, not the certificate or the invoice. Five checks, two minutes.
- Is the plan named? Either directly or by an omnibus clause covering the sponsor’s benefit plans. A bond in the company name alone does not do the job.
- Is the amount at least the calculated figure? Compare to your own calculation, not to what somebody suggested.
- Is there a deductible? There must be none on the required amount. This is the check that most often fails when the bond came from an endorsement to an existing crime policy.
- Does it cover fraud or dishonesty, including collusion? That is the statutory peril.
- Is the surety on the Treasury list? Circular 570 is public and searchable. For a federally required bond the company needs to be on it.
File the bond with the plan records along with the calculation you used. When an auditor asks how you arrived at the amount, the answer should be a document rather than a recollection.
If you already have a crime policy#
Adding the plan to an existing commercial crime or employee dishonesty policy is permitted and is often the cheapest route if the policy already exists. It is also where most defective bonds come from, so it is worth doing deliberately.
Ask the carrier for an ERISA endorsement specifically, and then check that the endorsement does three things: names or identifies the plan, removes the policy retention as applied to the required amount, and provides at least the statutory limit for the plan. If any of the three is missing, the endorsement has not solved the problem, and the fact that a premium was charged does not change that.
Keeping it right#
The maintenance is one calculation a year and two conditions to watch.
The annual step. At the start of each plan year, recompute 10 percent of last year’s peak and compare to the bond. Raise it if short. That is the whole routine.
Watch for a plan name change. Restatements rename plans and the bond almost never follows. A bond naming a plan that no longer exists under that name is a problem you will discover at the worst moment.
Watch for a change in who handles funds. A blanket form handles ordinary staff turnover. What it may not handle is a new outside party taking on disbursement authority, for example moving to a TPA that now approves distributions. Confirm their bond when that happens.
Common questions
How fast can I get an ERISA bond?
Often quickly. A standard ERISA bond is usually written without a personal credit check or financial underwriting, so once you have the plan name, the amount and the effective date, issue is generally fast. Timing depends on the carrier and on the plan.
Can I backdate a bond to cover a year we missed?
No. A bond covers losses occurring during its term, and you cannot buy coverage for a period that has already passed. If the plan was unbonded for a prior year, the fix is to get bonded now and to correct the Form 5500 answer for the affected years. Talk to the plan’s TPA or ERISA counsel about how to handle the correction rather than quietly answering yes going forward.
What if I do not know the exact plan name?
Take it from the plan document or the most recent Form 5500. Those two should agree, and the bond should match them. If they do not agree with each other, that is a separate problem worth resolving before the bond is issued, because it will surface again at audit.
Do I need a new bond every year?
Not necessarily. A bond can be written for multiple years, and an existing bond that is still adequate in amount does not need replacing. What you do need every year is the check: recompute 10 percent of the prior year’s peak and confirm the bond still covers it.
What is Circular 570?
The Treasury Department’s annually published list of surety companies acceptable on federal bonds, with the underwriting limit for each. For a bond required by federal law the issuing company should appear on it. The list is public, and checking takes about thirty seconds.
Get the bond filed today
Answer a few questions and see pricing for this bond. A standard ERISA fidelity bond is usually written without a personal credit check and is often issued quickly, because the bond protects the plan rather than guaranteeing your performance.
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