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. The persons who would handle the funds or property of an employee benefit plan are known as plan officials in the ERISA. The Act certainly demands that there should be fidelity bond that must be placed to be able to cover the fiduciary or the ones responsible when it comes to managing the plan and the people who are going to handle the property of the plan and the funds. These fidelity bonds are meant for protecting the plans from fraud or dishonesty committed by the persons who are linked to them.
It is necessary that such plan official be bonded for 10 percent of the amount of the funds which 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, there are higher limits that may be purchased. But for the plan officials who are holding such employer securities, then the largest bond amount offered is $1,000,000.
You must know that such employee benefit plans with more than 5 percent of non-qualifying plan assets that are held in the limited partnerships, the mortgages, artwork, collectibles, real estate or securities of such closely-held companies and they are also held outside the regulated institutions such as the registered broker-dealer, the bank, insurance company or other kinds of organizations that are actually authorized in serving as trustee for the retirement accounts, plan sponsors should be doing one of these. One needs to make sure that the bond amount is 100 percent of value of those non-qualifying assets or one can also arrange for such annual full-scope audit in which the CPA is going to physically confirm the existence of those assets at the start and the end of that plan year.
401K has worked together with Colonial Surety Company that is recognized as a leader in 401K fidelity bonds or ERISA fidelity bonds. They are actually a national insurance company which is licensed in all fifty states and also territories of the US and they have been providing insurance products since 1930. Know that they are the biggest direct seller of the fidelity bonds in the United States.