Until this year, provisions under the Employee Retirement Income Security Act of 1974 (ERISA) only governed employee benefit managers of companies with more than 100 employees. But that changed in January 2016, when the federal law expanded its coverage of mid-sized businesses.
If you are the benefits manager of a company with 50 employees or more, ERISA provisions now cover the pension and health care plans of your organization, as well. These provisions includes a requirement all fiduciaries and persons who handle plan funds or assets must be bonded for 10 percent of the aggregate amount handled. The bond amount cannot be less than $1,000, and the Department of Labor cannot require a plan official to be bonded for more than $500,000, or $1 million for plans that hold employer securities.
Many benefits managers do not have good understanding of the three insurance bonds covering these plans. But to stay compliant and protected, it’s important that you know how they vary and how each one offers financial protection to plan sponsors and fiduciaries. Here’s a quick overview.
ERISA compliance bonds
ERISA compliance bonds cover exposure to deliberate and illegal acts committed by the fiduciary, such as when the fiduciary embezzles or misappropriates funds from an employee benefit plan. This insurance policy is often built into existing employee dishonesty or theft policies and is available through Westfield Insurance at minimal cost.
Employee benefits liability bonds
This type of bond covers claims involving nondiscretionary, administrative errors made to pension or benefits plans, for example, an inadvertent failure on the part of the fiduciary to enroll an employee in a 401(k) plan or to add a life insurance beneficiary. The key is that it was an honest mistake made by the fiduciary that affects one or more plan participants. Westfield also carries this coverage at minimal expense as an endorsement added to commercial general liability policies.
Fiduciary liability insurance
This bond protects against breaches of fiduciary rules and regulations as spelled out by ERISA. An example of a breach is poor or reckless investment decisions that cause a retirement fund to become insolvent. Both the corporate sponsor of the plan and the individual assigned fiduciary responsibilities are protected with this type of coverage. It is the only bond of the three that is not offered through Westfield Insurance Group.
These bonds are not overly expensive, they offer assurances and heightened protection to companies, and they all merit further exploration. Contact your Westfield insurance agent for additional details.