Super Simple Guide to ERISA Bonds

The ERISA Bond is a specific type of bond you have to get if you sponsor a retirement plan for your company.

If you are a business owner and you have sponsored a retirement plan like a SEP IRA or 401k for your company, you have to get an ERISA bond.

If this is your first time dealing with an ERISA bond, you might have a few questions, like: What is an ERISA bond? Why do I need one? How much do I need to be bonded for? How much does it cost?  How do I get one?

If you’re familiar with the concept and need for an ERISA bond, you may be curious about just the last two questions.

Wherever you’re at, the purpose of this post is to answer all these questions and get you bonded if you need to be.

What is an ERISA Bond?

An ERISA bond is a type of fidelity bond that pays for financial losses resulting fraudulent or dishonest acts performed by the people that handle your company’s retirement plan funds. Should a claim occur, the plan is reimbursed for the fraudulent loss of plan funds.

Here’s is a short version showing how a claim scenario could occur:

1. You, the business owner, hire a person to transfer funds from your company’s operating account to its 401k account each pay period. This person could be an independent contractor, vendor, or your own employee.
2. Each bi-weekly pay period, the person sends you a statement showing that $2,000 was transferred from the company’s account to the 401k. But in reality, the guy deposited only $1,500 into the company’s 401k and transferred $500 into his own account.
3. A year into it, when it comes to tax time, your CPA notices a $13,000 discrepancy between the amount pulled from the company account vs the amount deposited to your 401k.
4. A few lawyers, terminations, and apology letters later, you file a claim on your ERISA bond for $13,000.
5. The surety deposits $13,000 into your 401k account. The claim is closed.

Why Do I Need One?

As is the case at least half the time with insurance, you have it because the government says so. The mandate for ERISA bonds came in 1974, as part of the Employee Retirement Income Security Act.

How Much Do I Need to Be Bonded For?

Generally – with a few exceptions that are rare enough for me not to mention here – you need an amount equal to at least 10% of the total asset value of your retirement plan. So, for example, if you have a company sponsored 401k, and the total combined value of all your employees’, former employees that still have their 401k with you, and your own account equals $1,000,000, you would need to have an ERISA bond with a limit of $100,000.

ERSIA bonds cap at $500,000, so the maximum bond limit you would ever need to have is $500,000 regardless of how big your retirement account is. So if your company’s 401k grew to $10,000,000, you still only have to be bonded for $500,000.

How Much Do They Cost?

ERISA bonds are based on a rate that gets multiplied by the limit. The surety will determine the appropriate rate for your business based on your company’s characteristics (this is called underwriting). Rates can range from a fraction of a percent to over 1%.

Generally, you can expect 1% or less rate if the following applies to your company:

• You’ve had no ERISA losses in the last 5 years
• Your retirement plans are invested in Mutual Funds, ETFs, Index Funds, Money Market Funds, and Individual Stocks and Bonds

Rates tend to get lower the greater the bond limit.

Here’s an example of typical rates based on 10%-of-Asset-Value limit:

As you can see, fortunately, ERISA bonds are not very expensive.

How Do I Buy One?

Good news, they are also quick and easy to buy.

Just follow these steps to get your ERISA bond in less than five minutes.

1. Click here: Gillespie Insurance Services’ ERISA Bond Application
2. Find your state and click “start application” (if you’re in CA, use “All other states”)
3. Answer the four questions, get a qualified quote immediately, pay by credit card
4. Download your bond

It is super simple to maintain your bond too. Your bond automatically renews every year, as long as you need it. You’ll get an invoice by email. You can easily increase or decrease the limit by contacting us, your agent, or the surety directly.

It’s really that simple! Just click here to get started: Gillespie Insurance Services’ ERISA Bond Application