Fidelity Bond / Inflation Guard

[austin3515]

Does anyone know if fidelity bonds with inflation guard have any caveats, exclusions, etc. regarding non-qualifying plan assets?

So a plan has $1,000,000 but has $300,000 of real estate. Will the bond be $300,000 or still just $100,000?

I am afraid that plans using inflation guard might be lulled into a false conclusion that they are all set when in fact they are not.

Probably a less interesting example is a plan with $1,000,000 and $600,000 of real estate. I think that is more clear that the bond covers just $500,000 as most of these bonds indicate a "not to exceed $500,000" parameter.

Anyway I wasn't sure if anyone had already looked into this as it seems to be a potential hole in the bonding requirement for the small plan audit waiver.

[Lou S.]

I have not read an actual policy but my understanding of how they work is that the inflation protection is for the 10% of plan assets limit, not for the non-qualifying assets to avoid the small plan audit.

[Bird]

Interesting. I have such a bond, and it reads, after Maximum Amount...

unless an Extended Coverage Endorsement is in place. This endorsement provides for automatic daily increases to bond limit which covers the present and anticipated growth of a five (5) year term bond. The bond limit will automatically increase as the required by plans value increases according to the Department of Labor compliance rules. The endorsement supersedes the limit indicated by the bond and does not require future rider modification.

The vague reference to Department of Labor rules might indicate that it automatically covers non-qualifying assets, but I know in the application section it asks if there are non-qualifying assets, and you would have to purchase additional coverage as needed.

Further thought leads me to believe that the "vague language" is actually rather precise; that is, "the required by plans value" is in fact 10%, not to exceed $500,000. Additional coverage for non-qualifying assets is not "required", it is "required to avoid an audit." So I conclude that inflation guard coverage does not include non-qualifying assets.

(Yes it is Colonial Surety.)

[austin3515]

^{coverage for non-qualifying assets is not "required", it is "required to avoid an audit." So I conclude that inflation guard coverage does not include non-qualifying assets.}

Bird, I think you nailed it... I just wrote an article on this and I'm kicking myself for not including a special note on this. I think it's too bad their language has not caught up with this to make that more clear.

[Peter Gulia]

Austin Powers, in which publication should I look for your article?

[austin3515]

If I told you that it would reveal my secret identity. Let's just say it is not the Wall Street Journal...

I've often considered posting under my other real name but I'm more comfortable asking certain questions and providing certain responses with anonymity. I've noticed that even my posts from 10 years ago are still out there...

[John Feldt ERPA CPC QPA]

What?! You aren't actually Austin Powers? Sir Augustine Danger "Austin" Powers, International Man of Mystery?

[Mike Preston]

There is no anonymity on the internet.

[austin3515]

ok, I'm sure is someone really wanted to know they could find me, there are certainly enough people who know who I am. But certainly far fewer than would otherwise. And I don't think I've said anything that was egregious anyway.

[Insurance]

Colonial Surety only offers an Inflation Guard on a fidelity bond that contains Qualifying assets only.  both the 2, 3 and 5 year bonds have the inflation guard at no additional charge. 

When it comes to Non-Qualifying assets, Colonial offers a separate 1 year policy with NO inflation guard. 

[Belgarath]

On ‎10‎/‎21‎/‎2014 at 10:27 AM, austin3515 said:

there are certainly enough people who know who I am.

But, do YOU know who you are? Are you actually Jason Bourne?