Pension Trust/ERISA Bonds

A Bond Designed to Protect Your Valuable Pension Programs

What are Pension Trust/ERISA Bonds?

Many companies and unions  offer pension plans and/or profit sharing programs as part of a benefit package for their employees/members. These programs are managed by appointed or elected individuals associated with that company‚Äôs/union's plan, known as fiduciaries. To protect the plan and the money in these funds from fraud and dishonesty, the appointed fiduciaries need to be bonded. The pension trust bond does just that.

Why Is This Bond Needed?

The Pension Reform Act of 1974 (also known as ERISA - Employee Retirement and Income Security Act) states that the funds of pension or profit sharing plans must be protected under a fidelity bond for 10% of the amount of qualified funds handled, plus 100% of non-qualified funds.

As an example, a person who manages a profit sharing program that involves $300,000 in funds must post a bond for $30,000. The Commercial Blanket fidelity bond available satisfies this requirement at a reasonable cost. If the same program had $100,000 in non-qualified assets then a $120,000 bond will be required.

What determines qualified vs. non-qualified?

Qualifying plan assets are those held by a financial institution, such as a bank, insurance company, broker/dealer or regulated entity, mutual funds, participant loans, qualifying employer securities and self directed individual account plans.

Non-qualifying plan assets are those not held by a bank or financial institution. For instance, a limited partnership, artwork, collectibles, mortgages, real-estate and securities of "closely held" companies are examples of non-qualified plans.

Bonding Requirement Changes

Increased Bond Limits

The Act raises the maximum bond amount to $1,000,000, from the previous $500,000, for a plan that holds employer securities, regardless of whether a bonded person actually handles employer securities.

Relief for Broker-Dealers

The Act provides relief from the fidelity bond requirements of ERISA for SEC-registered broker-dealers that are subject to the fidelity bond requirements of a self-regulatory organization.

Laws and Regulatory Authority

The Employee Retirement Income Security Act of 1974 (ERISA) (Pub.L. 93-406, 88 Stat. 829, September 2, 1974) is an American federal statute that establishes minimum standards for pension plans in private industry and provides for extensive rules on the federal income tax effects of transactions associated with employee benefit plans. ERISA was enacted to protect the interests of employee benefit plan participants and their beneficiaries by requiring the disclosure to them of financial and other information concerning the plan; by establishing standards of conduct for plan fiduciaries; and by providing for appropriate remedies and access to the federal courts.

ERISA is sometimes used to refer to the full body of laws regulating employee benefit plans, which are found mainly in the Internal Revenue Code and ERISA itself.

Responsibility for the interpretation and enforcement of ERISA is divided among the Department of Labor, the Department of the Treasury (particularly the Internal Revenue Service), and the Pension Benefit Guaranty Corporation.

Unity Insurance can provide you with an ERISA bond as required by the law to protect those with fiduciary responsiblities.  Call us with your questions.

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