Employee Retirement Income Security Act (ERISA) bonds help ensure that participants and beneficiaries in an employee benefit plan are protected from dishonest acts of a fiduciary who handles their plan assets. The ERISA act requires anyone who handles plan assets to be covered with an ERISA bond.
The amount of the bond is determined by the amount of the benefit plan funds. ERISA bonds are set at no less than 10 percent of plan funds handled, up to a $500,000 maximum bond amount. However, higher limits can be purchased.
ERISA bonds are legally-binding contracts between three parties:
- The obligee—is the government agency requiring the ERISA bond
- The principal—the fiduciary purchasing the bond
- The surety—the underwriter providing the ERISA bond
An ERISA bond is not an insurance policy. If the fiduciary does not meet their contractual obligations, a claim may be filed against the bond. The fiduciary is liable for their own contractual obligations and must repay the surety bond for any damages incurred.
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