ERISA, Pension Plan Bond
What is ERISA?
The Pension Reform Act of 1974 (also known as the Employee Retirement and Income Security Act or "ERISA") was enacted to regulate most types of employee benefit plans. Also known as a Fidelity Bond for 401(K) and Retirement Plans, the purpose of the ERISA Surety bond is to protect the participants and beneficiaries of the plan from fraud and dishonesty of the appointed fiduciaries who manage the plan assets.
What type of ERISA Bond do I need?
There are two types of ERISA Surety Bonds available, Qualified Asset Plan and Non Qualified Asset Plan. Due to the less regulated form of investments of a non qualified asset plan, the risk is higher for the surety company and therefore the premiums will be higher.
- Qualifying Asset Plans are plans whose assets are held by a bank, insurance company, mutual fund, or other regulated entity.
- Non-Qualified Asset Plans are much broader in scope. Plan assets are held in real estate, artwork, investments in other corporations, and other non regulated investments.
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What amount of coverage is required?
This ERISA act requires a Bond in an amount equal to 10% of the plans assets at the beginning of the year for Qualified Asset Plans or 100% of the plan assets at the beginning of the year for Non-Qualified Asset Plans. If a plan has more than 5% non qualified assets, a combination of bonds is required. The amount of non qualified assets must have a bond for 100% of the non-qualified assets and the qualified asset portion must have a bond of not less than 10% of the qualified assets.
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