What You Must Know About the 401K Fidelity Bond
Actually, in 1974 the ERISA or that Employee Retirement Income Security Act was being enacted to be able to regulate many types of benefit plans for workers. ERISA section 412 and the regulated regulations require that the fiduciary of such employee benefit plan and each person who manages the funds or a property of another must be bonded.
The Act’s bonding requirements are necessary for protecting the benefit plans from risk of loss because of dishonesty or fraud on the part of the individuals who are handling the funds or any other property. The persons who would handle the funds or property of an employee benefit plan are known as plan officials in the ERISA. The Act necessitates that there has to be a fidelity bond which should be placed to cover the fiduciary or those responsible in managing the plan as well as those individuals who would handle the funds or property. Such fidelity bonds are actually intended to protect those plans from dishonesty or fraud committed by those individuals who are associated with them.
It is required that every plan official should be bonded for 10 percent of the amount of such funds that one would handle. In various cases, the maximum bond value that may be required under the ERISA with respect to such plan official is half a million dollars for every plan. However, there are also higher limits which one can buy. But for the plan officials who are holding such employer securities, then the largest bond amount offered is $1,000,000.
Know that the employee benefit plans with over five percent of such non-qualifying plan assets which are held in limited partnerships, collectibles, artwork, real estate, mortgages or the securities of the closely-held companies and they are held outside of such regulated institutions like the bank, registered broker-dealer, insurance company or other organizations which are authorized to serve as trustee for those individual retirement accounts, those plan sponsors must do one of these things. One needs to make sure that the bond amount is 100 percent of value of those non-qualifying assets or one can also arrange for such annual full-scope audit in which the CPA is going to physically confirm the existence of those assets at the start and the end of that plan year.
401K has worked together with Colonial Surety Company that is recognized as a leader in 401K fidelity bonds or ERISA fidelity bonds. Actually, they are a national insurance company that is able to render services to all 50 states with their license and in all of the US territories and they have been providing such insurance products for several decades now. Know that they are the biggest direct seller of the fidelity bonds in the United States.
Source: company website