What You Must Know About the 401K Fidelity Bond
It was in the year 1974 that the ERISA or the Employee Retirement Income Security Act was actually enacted to regulate various types of benefit plans for the employees. The ERISA section 412 as well as the regulated regulations demand that each fiduciary of an employee benefit plan and also every individual who deals with funds or the other property of such plan has to be bonded.
The Act’s bonding requirements are necessary for protecting the benefit plans from risk of loss because of dishonesty or fraud on the part of the individuals who are handling the funds or any other property. Persons who are going to handle the property or funds of the employee benefit plan are called plan officials in the ERISA. The Act demands that there must be a fidelity bond that should be placed to cover such fiduciary or the ones responsible in managing the plan and also the individuals who handle those funds or a property of the plan. Such fidelity bonds are actually intended to protect those plans from dishonesty or fraud committed by those individuals who are associated with them.
It is required that the plan official be bonded for at least ten percent of the amount of funds that one handles. In various cases, the maximum bond value that may be required under the ERISA with respect to such plan official is half a million dollars for every plan. But, higher limits may also be purchased. But, there is a maximum bond amount of a million dollars for the plan officials of those plans which hold the employer securities.
Know that the employee benefit plans with over five percent of such non-qualifying plan assets which are held in limited partnerships, collectibles, artwork, real estate, mortgages or the securities of the closely-held companies and they are held outside of such regulated institutions like the bank, registered broker-dealer, insurance company or other organizations which are authorized to serve as trustee for those individual retirement accounts, those plan sponsors must do one of these things. One would be to ensure that the bond amount is equal to a hundred percent of the value of such non-qualifying assets or one may arrange for the annual full-scope audit, the CPA would physically confirm the presence of the assets at the beginning as well as the end of the plan year.
401K has worked together with Colonial Surety Company that is recognized as a leader in 401K fidelity bonds or ERISA fidelity bonds. Actually, they are a national insurance company that is able to render services to all 50 states with their license and in all of the US territories and they have been providing such insurance products for several decades now. They are surely the biggest direct seller of such fidelity bonds in the US.