Does Your Plan Have Adequate Bond Coverage?

Kimberly A. Reed

Principal, CPA

12 June 2017
One of the Employee Retirement Income Security Act (ERISA) requirements is that anyone who handles plan funds and other property must be covered by a fidelity bond to protect the plan from losses due to fraud or dishonesty. Fraud or dishonesty includes, but is not limited to: larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion, willful misapplication, and other acts. Every person who “handles funds or other property” of an employee benefit plan is required to be bonded unless covered under an exemption under ERISA. ERISA makes it an unlawful act for any person to “receive, handle, disburse, or otherwise exercise custody or control of plan funds or property” without being properly bonded. A person is deemed to be “handling” funds or other property of a plan whenever his or her duties or activities could cause a loss of plan funds or property due to fraud or dishonesty, whether acting alone or in collusion with others.

The general criteria for determining “handling” include:


  • Physical contact with cash, checks or similar property;
  • Power to transfer funds from the plan to oneself or to a third party;
  • Power to negotiate plan property (e.g., mortgages, title to land and buildings or securities);
  • Disbursement authority or authority to direct disbursement;
  • Authority to sign checks or other negotiable
    instruments; or
  • Supervisory or decision-making responsibility over
    activities that require bonding.


Generally, each person must be bonded in an amount equal to at least 10{dbc2a7977897ed6bb279211f092ba1f542e4cbaf62b292c7a918387c014c548c} of the amount of funds he or she handled in the preceding year. The bond amount cannot, however, be less than $1,000, and the Department cannot require a plan official to be bonded for more than $500,000, or $1,000,000 for plans that hold employer securities. These amounts apply for each plan named on a bond. For example, assume your company’s plan has funds totaling $1,000,000. The plan trustee, named fiduciary, and the administrator are three different company employees that each have access to the full $1 million, and each has the power to transfer plan funds, approve distributions, and sign checks. Under ERISA, each person must be bonded for at least 10{dbc2a7977897ed6bb279211f092ba1f542e4cbaf62b292c7a918387c014c548c} of the $1 million or $100,000. The plan can pay for the bond using the plan’s assets. The purpose of ERISA’s bonding requirements is to protect the plan. Such bonds do not protect the person handling plan funds or other property or relieve them from their obligations to the plan.  Therefore, the plan’s purchase of the bond is allowed.

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