Who Purchases ERISA Bond?

[Guest BenefitsAnnie]

Our 401(k) Plan is covered by a Fidelity Bond purchased by the Plan's Trustee, State Street Bank & Trust. Does this bond also cover the Plan's assets in event of dishonest acts by our company's employees -- or does it only cover the Plan in the event of dishonest acts by the Trustee's employees?

[masteff]

It depends on what coverage was purchased. You'd need to see the fidelity bond to read what it covers.

[GMK]

Agreed.

And check that the bond pays the Plan (not the company or trustee) for plan losses due to evil-doers.

[Guest BenefitsAnnie]

The bond purchased is a Fiducicary Dishonesty Bond for Employee Benefits Plans per the bond certificate. The insured is State Street Bank but given that the bond covers fiduciary dishonesty, I believe that includes employees of the company as well as the Trustee. Your thoughts?

[BG5150]

Did you ask the bond-writer what they think?

[david rigby]

Who really paid for it? the plan? State Street?

Perhaps SS is protecting itself, not necessarily the plan? or the sponsor's employees?

[Guest BenefitsAnnie]

Thanks for suggesting that I contact the bond issuer, BG5150. Why didn't I think of that? A rep of the insurer that issued the bond provided me with the full policy and referred me to language in the rider that specifies that the employer sponsoring the Plan is also covered by the bond. So, yes, State Street procures the bond but it covers the employer sponsor for fiduciary acts of dishonesty.

This isn't my first 401(k) plan audit but I learn something new every time.

[QDROphile]

Now you have to wonder if the use of plan assets to purchase protection for the employer sponsor is a permissible use of plan assets.

[GMK]

For example (from a google search):

http://www.withum.com/pdf/ERISA/Article/ERISA_Bonding_Requirements.pdf

Note item 2: the bond must protect the PLAN against loss by bad people. So far you've said that SS and the employer sponsor are covered, but is the plan the named insured?

... and what QDROphile said.

[BG5150]

Unless a plan document specifically forbids it (I guess), purchase of an ERISA bond is an acceptable expense to pass along to the trust.

[Bill Presson]

Using plan assets to buy a typical fidelity bond protecting the plan is pretty standard.

But I'm confused as to why State Street needs the plan to do this? As a corporate trustee/custodian, they should have a several million dollar bond in place and I'm pretty sure they are exempt from having to get a bond for each plan.

[QDROphile]

This discussion has become far too chaotic. It appears that the bond is a fidleity bond for the benefit of the plan. The insured is State Street, as trustee of the plan and legal owner of the assets of the plan; that makes the plan insured. Some fiduciary has the obligation to make sure that the plan has the appropriate bond coverage. the fiduciary might be stat stree or someone else. State Street does not have to be bonded because it is a bank or trust company. All fiduciaries and those who handle plan funds must be bonded, Evidently the plan sponsor is a fiduciary, whidh is a common bad practice. The plan sponsor is bonded. Employees of the plan sponsor are fiduciaires or handle plan funds. Those people are probably bonded, but the terms should be examined to make sure. If the plan sponsor is a fiduciary and a corporation, all of the directors are fiduciaries (or at least the Department of Labor will say so) and the bond should cover them, but check the terms. It is appropriate for State Stree to use plan funds to bond everyone as described. Anyone with questions should start over from this context, including a criticism or correction of the description.