Texas Bond - ERISA Policy in Texas

Brief Summary

An ERISA fidelity bond is what lets the people at a Texas company legally touch the retirement or welfare plan's money. It protects the plan, not the company, against theft and fraud by anyone who handles plan funds. The plan itself may pay for it, and the amount is set by a simple federal formula.

Every person who handles funds or other property of an employee benefit plan covered by ERISA must be bonded under 29 U.S.C. 1112. The bond must equal at least 10 percent of the funds that person handled in the preceding year, with a $1,000 minimum and a $500,000 maximum per plan, or $1,000,000 for a plan that holds employer securities. The rule is federal and works the same in Texas as in every other state. The plan must be named on the bond, and the surety must be on the Treasury Department's Circular 570 list.

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How to Apply for a Texas Bond:

• List every person who handles plan funds or property, including in house staff and outside service providers.
• Find the plan's funds handled for the preceding plan year and multiply by 10 percent.
• Apply the $1,000 minimum and the $500,000 cap, or the $1,000,000 cap if the plan holds employer securities outside a broadly diversified fund.
• Make sure the plan's exact legal name appears on the bond as the insured.
• Confirm the surety appears on Treasury Department Circular 570.
• Review the amount at the start of each plan year and raise it if plan assets have grown.

Detailed Information About the Texas Texas Bond:

Fiduciary liability insurance does not satisfy this

This is the mistake Texas plan sponsors make most often. The Department of Labor's Field Assistance Bulletin 2008-04 is direct about it: the section 412 fidelity bond insures the plan against losses from fraud or dishonesty, while fiduciary liability insurance generally insures against losses from breaches of fiduciary duty. Having one does not take care of the other.

The amount is a formula, not a flat figure

Under 29 U.S.C. 1112 and 29 CFR 2580.412-11, each person who handles plan funds must be bonded for at least 10 percent of the funds handled, measured over the preceding reporting year under 29 CFR 2580.412-14.

• Minimum: $1,000 per plan.
• Maximum: $500,000 per plan official per plan.
• Plans holding employer securities: maximum of $1,000,000.

The DOL example: an administrator who handled $600,000 needs a bond of at least $60,000. A plan does not count as holding employer securities just because it owns them inside a broadly diversified fund such as a mutual fund or index fund. The amount has to be fixed at the start of each plan year, so review it every year as plan assets grow.

Who must be bonded

Anyone who handles funds or other property of the plan. That includes people with physical contact with cash or checks, power to transfer funds, authority to sign checks or make disbursements, and those who supervise those duties. A business owner or plan sponsor is bonded only if it handles plan funds itself. A person who only gives investment advice, with no discretionary authority over the money, does not need a bond for that role alone.

Who is exempt

• Unfunded plans that pay benefits only from the general assets of the employer or union.
• Registered brokers and dealers subject to bonding rules of a self regulatory organization.
• Banks and insurance companies with trust powers or insurance authority that are subject to federal or state supervision and meet the capital and surplus test in the statute.

What the bond must look like

• The plan must be named or otherwise identified on the bond so it can make a claim.
• No deductible. Coverage runs from the first dollar of loss up to the required amount.
• The surety must hold a certificate of authority from the Treasury Department and appear on Department Circular 570.
• Neither the plan nor any party in interest may control or hold a significant financial interest in the surety.
• The bond can run longer than one year, but it must meet the required amount at the start of each reporting year, and there must be a one year period after cancellation to discover losses.

Paying for it

The plan may buy its own section 412 bond with plan assets. DOL says doing so does not violate ERISA's fiduciary rules. The premium depends on the bond amount, the number of people covered and the surety's view of the plan's controls.

Why the page says Texas

No Texas agency sets the amount or the form. A Texas employer sponsoring a 401(k), pension or welfare plan follows the same federal rule as an employer anywhere else in the country.

Eligibility and Requirements for a Texas Texas Bond:

• Coverage of at least 10 percent of funds handled for each bonded person.
• No deductible or similar feature that shifts any part of the required coverage to the plan.
• A surety on the Treasury Department's Circular 570 listing.
• No control or significant financial interest in the surety by the plan or a party in interest.
• A one year discovery period after the bond is cancelled or terminated.

Texas Texas Bond FAQs:

Official and Additional Resources for the Texas Texas Bond: