Did you get a notification letter about needing ERISA bonds for your employees?
As a business owner with an established retirement plan for your employees, you must have ERISA bonds.
The Employee Retirement Income Security Act (ERISA) began in 1974. This act was started as a way to ensure that pension funds are available to employees when they retire. Federal law has minimum requirements for setting up and maintaining pension plans for the private sector. With ERISA bonds, your employees get protection that they will receive these funds when they need them.
Why Bonds Are Necessary
ERISA bonds protect plans from theft. This protection extends to anyone who “handles” the pension plan. This includes fiduciaries and anyone else who manages the plan.
With a bond in place, recipients will not lose the funds due to dishonest or fraudulent business practices. Even without any criminal history, the federal government still needs to see that you have purchased a bond.
How ERISA Bonds Work
You must buy ERISA bonds for 10% of the full retirement plan. Most of the time, the highest bond that you can purchase is for $500,000 per plan.
There are some types of retirement plans with unique rules. These include plans that have at least 5% or more of non-qualifying assets. Non-qualifying assets include limited partnerships, artwork, collectibles, mortgages, real estate, or securities. Although rare, these types of plans require that you have an outside company, such as a bank or an insurance company, act as the trustee for the individual retirement plans. If this sounds like you, you still must ensure that the bond amount is equal to 100% of the value of the assets or have a CPA physical audit the assets each year.
For the majority of Missouri businesses, a basic ERISA bond is sufficient to cover the tax liability. This will adequately protect both your business and your employee.
Aren’t ERISA Bonds the Same Thing as Insurance?
If you already have fiduciary liability insurance, you might think you’re covered. You’re not. The core differences between these two policies are as follows:
- Fiduciary liability insurance protects against losses when the fiduciary breaches responsibility. The insurance plan pays the losses for you.
- ERISA bonds protect against losses from theft, dishonesty, plan fraud, and other unlawful acts on the part of the people who handle the funds within the pension plan. They do not pay for losses. Instead, they guarantee that you will be able to cover losses up to the amount of the bond. The bond is there to cover you if you are not able to meet the financial obligations.
ERISA bonds are actually not insurance at all. Plan managers must purchase them separately to cover against losses from theft.
Need Help Buying ERISA Bonds?
Although ERISA bonds seem complex, they’re quite simple (and affordable) to purchase. By answering a handful of questions on our website, you get the bonds you need and get on with your business. You don’t have to worry about tax liabilities and you will know that your employees are covered should anything go wrong.
If you need some extra help purchasing these bonds, we’re happy to walk you through the process. Call our office for step-by-step guidance. 573-346-7224.
