Fidelity Bond Requirement

[Guest ActuaryWannabe]

Profit sharing plan sponsor is 100% owned by a family trust. The only two participants are the trustees and primary beneficiaries of the family trust. In other words, the two participants are John and Mary Smith, and the owner of the Smith Corporation (plan sponsor) is John and Mary Smith as Trustees of the Smith Family Trust.

Do you think a fidelity bond is required in this case?

[WDIK]

Is the answer to you question the same as that to the question "Must Form 5500 be filed?"

[Guest ActuaryWannabe]

Kinda. It comes down to whether this is an ERISA plan or not. What's your vote, WDIK??

[WDIK]

This is my logic (fire at will):

1) The constructive ownership rules indicate, in part, that "tock owned, directly or indirectly, by or for a trust...shall be considered as owned by its beneficiaries in proportion to the actuarial interest of such beneficiaries in such trust." [section 318(a)(2)(B)(i)]

2) An assumption is made, although not stated explicitely in your post, that John and Mary are husband and wife.

3) John and Mary Smith as beneficiaries are considered owners. The percentage of ownership depends on their interest in the trust. The use of the term "primary beneficiaries" leads me to believe that there are other beneficiaries who may also be considered owners.

4) Since John and Mary do not "own" the entire business, they are not eligible to file Form 5500-EZ.

5) A Form 5500 must be filed.

6) A fidelity bond is required.

[Guest ActuaryWannabe]

By "primary" I don't mean "main". I mean "not contingent". In this case they are the sole beneficiaries of the trust, and yes they are married. If I follow your logic then, I would reach the opposite conclusion in this case, that they are deemed to own the entire business, and thus do not have to file a 5500 or get a bond. Accurate?

[WDIK]

Agreed.

Sorry about the brain cramp on the definition of primary. I'm not sure why I read it the way I did.