Consequences for not having Fidelity Bond?

[jkharvey]

Client received a call from DOL saying that since they answered the F5500 "no" with regards to fidelity bond coverage we are wondering what DOL will do if they actually come out to "audit" the plan. Does anyone have experience w/ DOL and this type of failure? I'm not concerned about IRS, just DOL.

Thanks

[Tom Poje]

dol might sue

http://www.dol.gov/ebsa/newsroom/pr032901.html

[jkharvey]

Tom,

Thank you so much for that link. I searched the DOL website but didn't find that. May I ask what your "secret" is to searching for things at DOL?

[Guest ritchie]

I like secrets. Let's have em.

[Belgarath]

I seem to recall looking this up once upon a time, and found it rather frustrating.

I THINK that there isn't necessarily a specific monetary penalty (i.e. - no set amount per day, etc.) but that there is a potential for a 20% penalty for a fiduciary breach, under ERISA 502(l). So if the DOL sues, as Tom mentioned, then I think this comes into the mix.

Furthermore, if you don't have the fidelity bond, then you can't take advantage of the VFC program. So an inadvertent breach that is otherwise correctible under VFC could really come back to bite you.

8-16-05 update - I think the above paragraph is incorrect. The revised VFC program released in April modified Section 6 to remove the Fidelity Bond documentation requirement. Perhaps they may still come back and request it for violations that aren't really "minor" - I don't know.

[Tom Poje]

secret - I am a spy for the DOL. boy, wait til you guys start getting the letters I am sending out....

actually, a few years ago I had printed out an article about this. even as disorganized as I am, I do have a folder labeled 'fidelity bond'. thank goodness. I tried a search on the DOL site for this today, and met with the same failure you did.

however, I tried google with the company name + fidelity bond and found the website article - it was an updated version of what I had.

..........Another secret...................

it appears this years song to be included in my ASPPA talk will be by Loius Armstrong.................

[Belgarath]

Singing or trumpet? Be careful if the trumpet - you might be accused of blowing your own horn...

Will MTV be doing a music video of the performance?

[Tom Poje]

oh, so now you want me to add in a powerpoint presentation as well. good grief.

[Kirk Maldonado]

I actually wrote an article about fidelity bonds: ERISA's Bonding Requirements for Benefit Programs, 6 Benefits Law Journal 207 (1993).

Sorry, but I don't have any reprints of it. I'm posting that because I'm sure that I will be inundated with requests for copies of it, bcause the bonding requirements are such a hot topic right now (and always have been).

[rcline46]

No bond? Case from Michigan I think about 4 years ago, sponsor went to jail for refusing to get bond, big fines, barred forever from being a fiduciary.

Make it very clear the person is an absolute idiot for not getting a bond, they are very inexpensive.

[Bird]

Client received a call from DOL saying that since they answered the F5500 "no" with regards to fidelity bond coverage we are wondering what DOL will do if they actually come out to "audit" the plan.

Huh? What exactly did DOL say?

No bond? Case from Michigan I think about 4 years ago, sponsor went to jail for refusing to get bond, big fines, barred forever from being a fiduciary.

Yeah, but if I remember correctly they were told to get a bond and refused to do so.

I agree that there's no excuse for not having one though.

[Guest ritchie]

There is no excuse for inadequate bondage.

[401 Chaos]

I have a similar question which may be along the lines of what the original poster was asking. I would appreciate the group's thoughts. What if a small client, presumably due to ignorance and bad advice, never had a Fidelity Bond. They consistently answered "No" on the Form 5500 for a couple of years but recently got contacted by the DOL asking why they had no bond. They took steps to seek advice and acquire a Fidelity Bond immediately upon the DOL's inquiry and now have a bond in place. Is the DOL likely to impose any penalties for prior non-compliance or take other action where the plan is cooperative and takes immediate steps to do the right thing? Like Belgarath, I have not found a specific monetary penalty that applies other than the blanket fiduciary breach penalty. Would appreciate hearing from others with similar experience.

[Belgarath]

My experience on this is that once the bond is in place, the DOL doesn't proceed any further. No guarantee, of course, that the DOL would be this benign on every case, or that they will continue this practice...

[JAY21]

My experience is the same as Belgarath's.

[Lori H]

i have been through this. company's 401(k) got dol audit. dol discovered they did not have a bond and all they required them to do was get one and send them copy of bond. no penalties.

[Guest ritchie]

Tom, would that be a bicycling song by Mr. Armstrong? If so, I have a couple of sing-a-longs that you could consider.