Is an ERISA fidelity bond needed?

[mming]

A husband and wife fully own a business that sponsors a profit sharing plan. Both of them and their 2 adult children are the only participants and there are no other employees. The husband and wife are the only ones who have an account balance. I have read that a bond is required when a plan covers participants other than the owner and spouse, but what if these other participants do not have account balances?

[J Simmons]

A husband and wife fully own a business that sponsors a profit sharing plan. Both of them and their 2 adult children are the only participants and there are no other employees. The husband and wife are the only ones who have an account balance. I have read that a bond is required when a plan covers participants other than the owner and spouse, but what if these other participants do not have account balances?

I think that whether the plan is covered by ERISA, and thus an ERISA bond is required, depends on whether the plan allows EE contributions, like a 401k featured plan does. This would be because the two adult children are not owners of the business but would be participants (albeit with no accrued much less vested benefits) of a plan that allows EE contributions.

DoL Reg § 2510.3-3(b) excludes from ERISA's reach Keogh plans that cover only partners or the sole proprietor, and no common law EEs. That is not the case because the two adult children are not partners with their parents; if the two adult children are EEs, they are common law EEs.

DoL Reg § 2510.3-3(b) also excludes from ERISA coverage plans have no "participants covered under the plan, as defined in paragraph (d) of this section".

DoL Reg § 2510.3-3(d)(1)(ii) provides

An individual becomes a participant covered under an employee pension plan—

(A) In the case of a plan which provides for employee contributions or defines participation to include employees who have not yet retired, on the earlier of—

( 1 ) The date on which the individual makes a contribution, whether voluntary or mandatory, or

( 2 ) The date designated by the plan as the date on which the individual has satisfied the plan's age and service requirements for participation, and

(B) In the case of a plan which does not provide for employee contributions and does not define participation to include employees who have not yet retired, the date on which the individual completes the first year of employment which may be taken into account in determining—

( 1 ) Whether the individual is entitled to benefits under the plan, or

( 2 ) The amount of benefits to which the individual is entitled,

whichever results in earlier participation.

If the plan provides for EE contributions, he is a participant for purposes of which plans are excluded from ERISA merely by reason of becoming eligible (i.e., meeting the age and service requirements). However, if the plan does not allow EE contributions, it would appear that until either of the adult children does accrue a benefit the plan would be excluded from the scope of ERISA.

[TPApril]

Howbout a husband/wife with 1 employee who terminates and withdraws during the year. Current bond expires during year, but after distribution date. Need to renew? Can 5500-SF show fidelity bond in effect at BOY but not at EOY? Will be filing EZ next yr.

[Bird]

I wouldn't bother getting one. I think the amount to enter would be end of year (i.e. check the "No" box).