Fidelity bond

What a fidelity bond is

Section 412 of ERISA requires every fiduciary of a plan, and every person who handles plan funds or property, to be bonded. The bond pays the plan if one of those people steals or misuses plan assets. The plan is the insured party.

Each covered person must be bonded for at least 10% of the plan funds they handled in the prior year. The minimum bond is $1,000. The maximum the law requires is $500,000 per plan, or $1,000,000 for plans that hold employer securities. The bond must come from a surety or reinsurer on the Treasury Department’s approved list, and it cannot have a deductible.

Why it matters to employers

The bond is mandatory, and Form 5500 asks whether the plan is covered and for how much. A missing or undersized bond is an easy finding in a Department of Labor review. Because plan assets grow, the amount should be checked every year.

Example

A plan held $2,000,000 at the end of 2025. For 2026 the bond must be at least $200,000. If the plan held $8,000,000, 10% would be $800,000, but the required amount stops at $500,000 unless the plan holds employer stock.

Common mistakes

• Confusing the bond with fiduciary liability insurance. That is an optional policy that protects fiduciaries from claims of breach. The bond protects the plan from theft.

• Relying on a company crime policy that does not name the plan or meet ERISA terms.

• Letting the bond amount fall below 10% as assets grow. A bond with an inflation guard adjusts automatically.

• Assuming service providers’ own bonds cover your employees who handle contributions.