Bonding with a Bank Trustee

[Earl]

I have a client that uses a Bank as the Trustee of his plan. As I understand it the client is not required to hve a fidleity bond. In completing the Sch I, should I check "No Bond"?

If there is a cross reference to the Schedule P which names the bank and is signed by the bank, I guess the DOL could tell that the "plan" was not required to be covered by a fidelity bond. That cross reference seems unlikely to me. And what does "covered" mean? I would guess that the plan is not named on the banks bonding policy.

or... would you say yes and try to obtain the amount of bonding that the bank has?

or just assume that the bank has $500,000 of bonding in place and enter that amount?

Just seems like an obvious reject for audit item if I say "no Bond".

[jaemmons]

If the bank is a fiduciary to the plan, as long as they are "subject to federal regulation and federally insured" they are exempt from being bonded under ERISA 412(a). Most banks are directed trustees, whereby they will only act as a custodian or holder of the plan's assets. In such a capacity, so long as their services to the plan are subject to the discretion of the plan administrator, they do not become a fiduciary to the plan, as defined in ERISA 3(21)(A).

Also, all fiduciaries must be bonded, unless they are exempt from coverage under ERISA, so anyone or any entity which exercises control over the assets of the plan must be bonded, so you may still need to obtain a fidelity bond for the plan administrator.

[Mike Preston]

May?

[jaemmons]

Sorry Mike, I guess I should have been a little more adamant with "must", like all clients, you can lead them to water but you cannot make them drink...

[Guest M. Martin]

A similar question has recently come up on this topic which I would be very interested in other opinions. We are a financial institution that is the Trustee for numerous retirement plans as well as our own. As I understand the regulations, we are exempt from the bonding requirements as far as our role in handling the pension funds for these plans. However, in reading a DOL publication addressing Fidelity Bonding there is a question and answer section in which one of the items states the following:

Q6. Do the bonding requirements apply to a bank or trust company which administers a plan for the benefit of its own employees?

A. Banking institutions and trust companies subject to federal regulation and examination have been exempted from bonding under the Act with respect to welfare and pension benefit plans which they administer for the benefit of their own employees. Banking institutions and trust companies subject only to state supervision and examination must comply with the bonding requirements.

Does this mean that as a federally regulated institution we are not required to carry bond coverage for our retirement plan? And for our clients who are also financial institutions are they exempt as well?

If the answer for both is yes (federally regulated institutions are exempt), then what would be the correct answer for item 4e of the 5500?