Investment advisor question (re: erisa bond)

[Moe Howard]

Given: A professional (registered with SEC) investment advisor .... renders investment advise to 10 different separate unrelated retirement plans.

Given: He meets the Erisa definition of a "fiduciary" for each of the 10 plans.

QUESTIONS:

1) ERISA requires that he be bonded , right ?

2) Is he required to obtain the bond or is the plan(s) required to obtain the bond ?

What ERISA code section # or DOL reg # states who is required to obtain the bond.

3) I've heard that ERISA "allows" him to obtain a "single bond" which names him as principal and all 10 plans as obligees, but that the "single bond" must allow recovery by each plan in an amount that would be required if each plan were bonded separately.

Does anyone know which ERISA code section # or DOL reg # that states that ERISA allows the things stated in 3) above ?

[four01kman]

My recollection is ERISA Section 40? requires the Plan to be bonded, not the fiduciary. This is to protect the Plan from loss.

Individual fiduciaries may want to be covered by a fiduciary liability policy.

[Guest Mickey Maier]

EROSA 412 requires all plan officials including all fiduciaries to be bonded. It is possible to be covered by the plan sponsor's fidelity bond but you need to be specifically listed. I do not know the authority for the approach under 3, however, I have had the DOL take that interpretation on audit of a fiduciary service provider.

[Peter Gulia]

A notice on May 12, 1975 redesignated rules under the Welfare and Pension Plans Disclosure Act of 1958 as temporary rules to interpret ERISA 412. Those rules provide support for the idea that a service provider may maintain, for the required coverage against dishonesty, an insurance contract that refers to a schedule of covered plans. See 29 C.F.R. 2580.412-18 and -20. What matters is that each plan has a right legally enforceable against the insurer to at least the coverage that the plan should be entitled to if insured separately.

Underwriting separately the likelihood of an investment adviser's or its employee's dishonesty causing loss to a plan sometimes results in a better price than otherwise might apply. Although some advisers try to require the employer as named plan fiduciary to get coverage to include the adviser and its employees, a risk is that the employer fails to do so (or lets the coverage expire) - leaving the adviser exposed to civil and criminal consequences.

[four01kman]

"Section 412 of ERISA, subject to certain exceptions, requires that every fiduciary of an employee benefit plan and every person who handles funds or other property of such a plan shall be covered by a fidelity bond that meets the requirements of section 412 of ERISA and the Department of Labor’s implementing regulations. Section 412(a)(2) provides, in relevant part, that no bond shall be required of a fiduciary (or of any director, officer, or employee of such fiduciary) if such fiduciary – (A) is a corporation organized and doing business under the laws of the United States or of any State; (B) is authorized under such laws to exercise trust powers or to conduct an insurance business; © is subject to supervision or examination by Federal or State authority; and (D) has at all times a combined capital and surplus in excess of such a minimum amount as may be established by regulations issued by the Secretary, which amount shall be at least $1,000,000.(2)"

The above is from DOL Advisory Opinion 2004-07A. For me, the key is ©, investment advisors generally are subject to Federal (and in some cases State) supervision or examination. Accordingly, bonding would not be required. I recognize I may be "finger reading" here, but I have not heard of individual investment advisors needing anything other than their E&O coverage.

[QDROphile]

Put your finger on the word"and" in the passage. The exception applies to regulated trust companies or insurance companies.