What Is An ERISA Bond And Do I Need One?

ERISA Bond Basics

Watch our video explaining the ERISA bond requirements.

First, let’s talk about the definition of a surety bond. A surety bond is a type of three-party contract that provides a guarantee that one party (called the principal) will fulfill their obligation to another (called the obligee). A neutral third party, called the surety, provides the financial guarantee.

So, what is an ERISA bond? An ERISA bond is a type of surety bond that covers administrators and other fiduciaries of retirement plans regulated by ERISA. In this case, the fiduciary is the principal, and the plan and its beneficiaries are the obligees. ERISA surety bonds protect against acts of fraud and dishonesty by retirement plan fiduciaries, such as:

• Theft or misuse of plan funds
• Forgery of documents
• Assuming duties that create a conflict of interest
• Using their position as a fiduciary for personal profit

In the event of alleged misconduct by the fiduciary, the obligee may file a claim with the surety against the bond, which the fiduciary will be responsible for paying back.

An ERISA bond must have a coverage amount (known in surety bond terms as a penalty sum) equal to at least 10 percent of the plan assets that the fiduciary handles. In most cases, the minimum amount of coverage required is $1,000 and the maximum amount is $500,000. For plans that include employer-issued securities such as company stock, the maximum coverage amount is $1 million.

Do I Need an ERISA Bond?

If your responsibilities include any of the following, you probably need an ERISA bond:

• Negotiating or transferring retirement plan funds
• Signing checks or other negotiable instruments of a retirement plan
• Working with cash, physical documents, or other physical assets of a retirement plan
• Disbursing plan funds to beneficiaries
• Supervising or having control over any of the above

The following types of plans are generally exempt from ERISA oversight:

• Government pensions
• Plans established by religious organizations such as churches
• Plans that only cover applicable disability or workers’ compensation laws
• Plans maintained primarily outside the United States

If you need an ERISA bond, it can be relatively simple to get one—but there are some key facts to know to ensure that you work with a qualified surety and get an affordable rate.

How Much Does an ERISA Bond Cost?

The surety bond cost for most types of bonds is a percentage of the penalty sum. The percentage varies according to the principal’s credit score. However, most ERISA bonds don’t require a credit check.

ERISA surety bonds under $500,000 are available in three-year terms for a one-time flat premium determined by the penalty sum. A surety bond with a $50,000 penalty sum has a premium of $179, while a surety bond with a $500,000 penalty sum has a premium of $450. See Surety Bonds Direct’s full list of ERISA bond premiums to find out how much your surety bond will cost.

Bonds with coverage of about $500,000 do require a credit check. However, it’s still possible to get an ERISA surety bond with bad credit by adding a co-signer or using premium financing options.

How to Get an ERISA Bond

To get an ERISA bond, you’ll need to apply for one with a surety company, insurance company, or surety bond broker. Many people who need ERISA bonds find that surety bond brokers offer the best results, as they specialize in unique products like ERISA bonds and can compare bonds from hundreds of different sureties to find the perfect one for each principal.

A principal who needs an ERISA bond must apply to a surety approved by the Department of the Treasury’s (listed on Department Circular 570). You can get your bond instantly today through Surety Bonds Direct—just find your bond amount on our ERISA bonds page, and we’ll match you with a Treasury-approved surety. (If you need a bond with a coverage amount over $500,000, you’ll need to go through a quick credit check.)