FOR ALL YOUR SURETY BOND NEEDS.
These surety bonds are general for all states.
People who put their hard-earned money into a 401(K) plan to save for retirement are entrusting the plan officials with their future financial security. Given the risk to plan participants, the federal government has enacted legislation requiring 401(k) surety bonds, which are categorized as fidelity bonds. The purpose of a 401(k) bond is to protect plan participants from financial loss incurred as the result of fraud or dishonesty by plan officials.
The Employee Retirement Income Security Act of 1974, commonly known as ERISA, is the federal statute intended to prevent the misuse of plan assets. ERISA established the standards of conduct that must be met by those who meet the definition of �plan official.� This includes all plan personnel who have the authority to:
Everyone who qualifies as a plan official must be covered by a 401(k) surety bond. Certain retirement plans, like those sponsored by churches or municipal governments, are not required to purchase these bonds.
ERISA requires continuous coverage, so a new bond must be purchased for each plan year. The alternative is a multi-year bond with inflation protection.
Typically, the 401(k) plan itself or the plan sponsor will pay for a bond for each plan employee required to be bonded. The bond agreement brings together three parties in a legally binding contract:
In the event that a principal commits fraud, embezzlement, or any other unlawful or unethical act that results in a financial loss to the plan or any of its participants, a claim can be filed against the bond. After determining that a claim is valid, the surety will pay it, but only as an advance on behalf of the principal. Legal responsibility for paying claims rests with the principal, who must reimburse the surety for any claims paid out on his or her behalf.
The minimum amount that each plan official must be bonded for is 10% of the funds they handle as of the first day of the plan year, or a minimum of $1,000. With only a couple of exceptions, the maximum bond amount for the plan, regardless of the number of plan officials covered, is $500,000. Most plans are able to purchase �blanket� bonds that cover all plan officials for a small fee�typically about $100 a year.
When individual principals purchase their own bond, the premium they will pay is determined by the surety, based on their personal credit score.
The subject of 401(k) surety bonds can be complex. Our staff of experienced professionals will gladly answer your questions to help you get the bond you need.
