BG5150 Posted January 11, 2022 Share Posted January 11, 2022 Plan has $2MM in assets, of which $1.5MM are in non-qualifying assets (real estate and partnerships). Does the bond have to be the full $1.5MM? Or it is capped at the traditional $500,000? QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left. Link to comment Share on other sites More sharing options...
Belgarath Posted January 11, 2022 Share Posted January 11, 2022 Full 1.5 MM. Luke Bailey 1 Link to comment Share on other sites More sharing options...
BG5150 Posted January 11, 2022 Author Share Posted January 11, 2022 That's what I thought. thanks. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left. Link to comment Share on other sites More sharing options...
Jakyasar Posted January 11, 2022 Share Posted January 11, 2022 I was once told by an agent it should 100% of the non-qualified assets plus 10% of the qualified assets i.e. 2 separate bonds and that is what I do. Link to comment Share on other sites More sharing options...
C. B. Zeller Posted January 11, 2022 Share Posted January 11, 2022 27 minutes ago, Jakyasar said: I was once told by an agent it should 100% of the non-qualified assets plus 10% of the qualified assets i.e. 2 separate bonds and that is what I do. Interesting, because that's not what the reg says. One of the examples in the reg clearly says you can use one bond to cover both the qualifying and non-qualifying assets. However it might be easier to get a second bond than to argue with a DOL agent if the plan is under audit. DOL reg 2520.104-46(b)(1)(iii)(B), relevant section highlighted. Quote Examples. Plan A, which reports on a calendar year basis, has total assets of $600,000 as of the end of the 1999 plan year. Plan A's assets, as of the end of year, include: investments in various bank, insurance company and mutual fund products of $520,000; investments in qualifying employer securities of $40,000; participant loans, meeting the requirements of ERISA section 408(b)(1), totaling $20,000; and a $20,000 investment in a real estate limited partnership. Because the only asset of the plan that does not constitute a “qualifying plan asset” is the $20,000 real estate investment and that investment represents less than 5% of the plan's total assets, no bond would be required under the proposal as a condition for the waiver for the 2000 plan year. By contrast, Plan B also has total assets of $600,000 as of the end of the 1999 plan year, of which $558,000 constitutes “qualifying plan assets” and $42,000 constitutes non-qualifying plan assets. Because 7%—more than 5%—of Plan B's assets do not constitute “qualifying plan assets,” Plan B, as a condition to electing the waiver for the 2000 plan year, must ensure that it has a fidelity bond in an amount equal to at least $42,000 covering persons handling non-qualifying plan assets. Inasmuch as compliance with section 412 requires the amount of bonds to be not less than 10% of the amount of all the plan's funds or other property handled, the bond acquired for section 412 purposes may be adequate to cover the non-qualifying plan assets without an increase (i.e., if the amount of the bond determined to be needed for the relevant persons for section 412 purposes is at least $42,000). As demonstrated by the foregoing example, where a plan has more than 5% of its assets in non-qualifying plan assets, the bond required by the proposal is for the total amount of the non-qualifying plan assets, not just the amount in excess of 5%. Luke Bailey and ugueth 2 Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance. Corey B. Zeller, MSEA, CPC, QPA, QKA Preferred Pension Planning Corp.corey@pppc.co Link to comment Share on other sites More sharing options...
Jakyasar Posted January 11, 2022 Share Posted January 11, 2022 Well, this as it may be, the insurance company did not allow a single bond (I think it was Colonial) and had to get 2 bonds, this was a while back. I am just sharing my experience. By the way, thank you for pointing to the example. Luke Bailey 1 Link to comment Share on other sites More sharing options...
BG5150 Posted January 12, 2022 Author Share Posted January 12, 2022 Just one bond covering 100% of the non-qualifying assets OR 10% of total plan assets, whichever is greater. (And, as we now remember, there is no $500,000 cap if/when the the nonqualifying assets are more than $500k. Or, I guess, $1MM if there employer securities involved.) Side question about the $1MM bond. If a plan has $12MM in assets, but only, like, $40,000 in employer stock, do I still need a $1MM bond? Luke Bailey 1 QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left. Link to comment Share on other sites More sharing options...
Belgarath Posted January 12, 2022 Share Posted January 12, 2022 Yup. Lesser of 10% or $1MM. Luke Bailey 1 Link to comment Share on other sites More sharing options...
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