ERISA Bonds vs. Fiduciary Liability Insurance
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What’s the deal? Is an Employee Retirement Income Security Act of 1974 (ERISA) bond the same thing as Fiduciary Liability insurance? The answer is “no.” There tends to be a lot of confusion among fiduciaries and retirement plan officials regarding their insurance needs. So what’s the difference between the two?
First off, the ERISA bond is required – Section 412 of ERISA requires all persons who handle funds or other property of an employee benefits plan to be bonded. Each plan sponsor must be bonded for at least 10 percent of the amount they manage, subject to a minimum of $1,000. The maximum bond per sponsor is $500,000 or $1,000,000 in the event that the plan holds employer securities. The typical bond protects the plan only from losses that result from fraud or dishonesty on the part of fiduciaries and other persons who handle plan funds.
Fiduciary Liability insurance typically insures the plan against losses caused by a breach of fiduciary liability. Fiduciaries are personally liable for losses incurred by a plan due to their breach. Although fiduciary liability isn’t required by ERISA, as is a bond, every fiduciary of an ERISA plan should seriously consider obtaining coverage. The coverages provided in a policy can differ significantly. The plan itself can purchase liability insurance for its fiduciaries or the employer and/or fiduciary can purchase. Executives who are expected to assume responsibility over the company’s benefit plans should consider incorporating fiduciary liability insurance as part of their overall compensation package.
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