Fiduciary Liability Insurance Versus Fidelity Bond

Companies often offer employee benefit plans to help attract and keep employees. Companies need to be aware of the liability exposure created from the management of these plans.

As a element the Employment Retirement Security Act (ERISA), a fiduciary of an employee benefit plan must act in the best interest of the participants and beneficiaries.

Under ERISA, a Trustee/Fiduciary can be held personally chargeable for the companies Retirement Plan, or Contentment Plan (including medical, dental, life and disability) How do I get a fiduciary erisa bond?.

Fiduciary Liability Insurance helps protect personal assets, and defense for the legal liability as a result of claims for supposed failure to do something prudently. Fiduciary Liability Insurance is not required by ERISA, but every company that provides almost any employee benefits plan should carry this insurance which is readily available.

A Fidelity Bond is a form of insurance for unethical situations.

When unethical managers or trustees have financially harmed an employee benefits plan, these bonds may be used, but only for the benefit of the plan and the plan’s beneficiaries. This bonding insurance will not protect the trustees themselves from liability claims and is completely distinct from fiduciary liability insurance.

ERISA requires that qualified retirement plans have a fidelity bond to cover at least 10% of the total value of plan assets (calculated at the beginning of the plan year), with a minimum bond element $1, 000 and a maximum bond element $500, 000 ($1 million for a plan that holds employer stock). This bond should be obtained via an insurance professional, and this requirement is not waived for any reason. Fidelity Bonds can be purchased individually or can be added as an optional coverage to a Business owners Policy (BOP).

Note: A one-participant plan, which is a plan that covers only the only real owner of the sponsoring business, the only real owner and his or her spouse, or partners in the sponsoring partnership and their spouses, is not susceptible to ERISA, and therefore has no bonding requirement.

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