Fidelity Bond Question?

[stevena]

Hello

I have a client whom I am filling out form 5500 for. The amount of the fidelity bond is the question.

The agent says the fidelity bond coverage is 10 million dollars. I have never seen coverage for this amount. The plan assets are only 3.5 million. I have seen clients who obtain more than the required bonding coverage...but ten million dollars?

I questioned the amount, including a question about whether perhaps the bond coverage they were giving me represented fiduciary liability insurance instead of a fidelity bond, but the agent said no, that the ten million dollars was the amount of coverage for the fidelity bond.

The answer I got from the agent was that the amount of the coverage represented the client's "crime policy" which includes theft of funds from the plan required by ERISA.

I guess my question is, does this seem odd to anyone else? Does it sound as if the policy includes other things besides the ERISA coverage, and if so, would I put the whole 10 million dollars in coverage on the 5500? or just the part that covers the plan?

I am asking this for my own personal knowledge, as I have gone back and forth with the client, and he to his insurance agent, and I feel I may be becoming a pest!

I am not knowledgeable about insurance so I would appreciate anyone who is answering the question. Thanks a lot!

:confused:

[FJR]

I have seen this happen to some of our clients as well. Often times the insurance agent doesn't understand the requirement for a fidelity bond which is 10% of the plan assets upto a max of 500k. They will sell them more than is necessary and will cover things outside the plan. You should ask how the bond is registered. Sometimes they cover the company against theft and it sometimes will also cover the plan. If it is registered in the name of the company and not the name of the plan, then you probably have a policy that is covering more than just the plan assets. If you want to see the motive of the Insurance agent, ask what the premium per year is on the bond. I bet the agent is making a pretty penny....As you probably know, a three year prepaid fidelity bond for a min. of 250k, usually runs around 100.00 a year. I bet your client is paying in the thousands per year....

Good luck.

[stevena]

Thanks for the clarification. I wanted to be sure this was not just me being ignorant of some requirement...

The agent says that the bond is part of the client's "Crime Policy" and covers the plan as PART of the policy. So, my question is, do I report on the 5500 the ENTIRE amount of the coverage? I am confused..I guess regarding a bond, does the 10 million make up parts of a whole, and I am looking for a part, or is this like a "blanket" crime policy where all parts are covered for the entire ten million.

Know what I mean?

:confused:

[Alf]

One important key that the DOL focuses on is that the bond must list the plan as insured without any dedcutible applying to the plan. If the policy just names the employer, it is not sufficient no matter how much money is involved. My guess is that their 10M policy doesn't list the plan as an insured or payee and it is not an ERISA bond.

[stevena]

Thanks...this is exactly what I thought. But do you know where I can find that terminology from the DOL that states that the plan must be named as the insured, not the company?

Thanks for your help