California Bond - ERISA Policy in California

Brief Summary

A California company that sponsors its own 401(k), profit sharing or other funded benefit plan needs this federal fidelity bond for everyone who handles the plan's money. It is sized from last year's plan funds handled, it protects the plan itself against theft and fraud, and the plan may pay for it out of plan assets.

ERISA section 412, codified at 29 U.S.C. 1112, requires every fiduciary and every person who handles funds or other property of an employee benefit plan to be bonded. The bond must equal at least 10 percent of the funds handled in the prior plan year, with a $1,000 minimum and a $500,000 maximum per plan, or $1,000,000 for a plan that holds employer securities or is a pooled employer plan. This is federal law, so a plan sponsored in California follows the same formula as a plan anywhere else.

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How to Apply for a California Bond:

• Pull the prior plan year's total funds handled from the plan's financial records.
• Multiply by 10 percent and apply the $1,000 minimum and the $500,000 or $1,000,000 cap.
• List every fiduciary, officer, employee and service provider who handles plan funds.
• Name the plan, exactly as it appears in the plan document, as the insured.
• Confirm the surety appears on Treasury Circular 570.
• Recheck the amount at the start of each plan year as assets grow.

Detailed Information About the California California Bond:

It is not fiduciary liability insurance

This is the point plan sponsors most often get wrong. The Department of Labor's Field Assistance Bulletin 2008-04 explains that the ERISA bond insures the plan against losses from fraud or dishonesty by the people who handle its funds. Fiduciary liability insurance generally insures against losses caused by breaches of fiduciary responsibility. They cover different risks, and only the bond is required by ERISA.

How to size the bond

Under 29 U.S.C. 1112 and 29 CFR 2580.412-11, the bond must be at least 10 percent of the funds handled, never less than $1,000, and not required above $500,000 per plan. The maximum rises to $1,000,000 for a plan that holds employer securities or is a pooled employer plan. The amount is fixed or estimated at the beginning of each plan reporting year, based on the highest amount of funds handled in the preceding plan year. A plan that handled $2,000,000 last year needs at least $200,000 of coverage. A plan without employer securities that handled $8,000,000 reaches the $500,000 cap. A new plan with no prior year estimates the amount under 29 CFR 2580.412-15, using the amount needed to set up the plan plus the contributions the plan formula requires.

Rules the bond must meet

• The surety or reinsurer must be on the Treasury Department's Circular 570 list of approved sureties.
• The plan must be named as the insured on the bond.
• No deductible within the required amount. The bond has to cover the plan from the first dollar of loss.
• One bond can cover several plans if each plan is protected as though it were bonded separately.
• Bonds may run longer than one year as long as the plan stays covered for the required amount.
• Plan assets may be used to buy the bond.

Who is outside the requirement

A plan whose benefits are paid only from the employer's or union's general assets is exempt. Certain registered broker dealers, and banks and trust companies with trust powers that meet the statutory capital and supervision conditions, are exempt from being bonded. Governmental plans, and church plans that have not elected coverage, fall outside Title I of ERISA under 29 U.S.C. 1003(b). That matters in California for cities, counties, school districts and other public employers.

CalSavers and the ERISA bond

In Howard Jarvis Taxpayers Association v. California Secure Choice Retirement Savings Program (9th Cir., May 6, 2021), the court held that CalSavers is not an ERISA plan because the State establishes and maintains it. An employer that offers its own employer sponsored retirement plan is exempt from CalSavers. If that is your route, your plan is an ERISA plan and the people who handle its money need this bond.

Eligibility and Requirements for a California California Bond:

• Bond of at least 10 percent of funds handled, $1,000 minimum, $500,000 maximum per plan.
• $1,000,000 maximum for plans holding employer securities and pooled employer plans.
• Coverage for fraud or dishonesty with no deductible within the required amount.
• Surety named on Treasury Department Circular 570.
• Plan named as the insured.

California California Bond FAQs:

Official and Additional Resources for the California California Bond: