Fidelity Bond (ERISA) Vs. Fiduciary Liability Insurance

Fidelity Bond (ERISA)

A fidelity bond protects a business against theft of its assets as a result of dishonest actions by employees. It does not cover the assets within a company’s retirement plan because plan assets are not the property of the company, but of the plan beneficiaries.

The Employment Retirement Income Security Act (ERISA) was put into place to safeguard employee retirement plans.  Among other things, it requires the posting of an ERISA fidelity bond to protect the retirement plan from losses caused by fraudulent or dishonest acts by persons who handle the plan.

A plan must be bonded for no less than 10% of the amount of the plan funds.  In most cases, the maximum ERISA bond required is $500,000 per plan, however higher limits are available.  They are issued on a “blanket” basis, so everyone who handles the plan is covered.

Fiduciary Liability Insurance

Fiduciary liability insurance provides coverage for breaches of duty by ERISA plan fiduciaries.  Fiduciaries are those responsible for operating and administering a retirement plan under ERISA.  Some of these duties include:  authority and management over plan assets, making high-quality prudent decisions, documenting and rendering investment advice over the plan’s assets.  Unlike the fidelity bond, fiduciary liability insurance also offers fiduciaries protection of personal assets.  Fiduciaries who breach their duties may be personally liable to make the plan whole for any losses caused by their breach, including lost opportunity and litigation costs.  Fiduciary liability insurance can be purchased as part of an organizations management liability insurance program or on a stand-alone basis.

At Cleary, we will evaluate your business exposures and work with you to develop a comprehensive plan to safeguard your business. Give us a call today at 617-723-0700.