Bond Requirement - ER (not public) stock in plan

[John Feldt ERPA CPC QPA]

To avoid the independent qualified public auditor opinion requirement for the Form 5500, does the fidelity bond need to cover 100% of an employer's non-publicly traded stock held within the plan, or can such stock be considered as a qualifying plan asset?

[Lou S.]

If it is non-publicly traded I don't see how it would met the definition of qualifying plan assets for the bonding exemption.

But maybe I'm missing something obvious.

 

[John Feldt ERPA CPC QPA]

That's what I thought at first and I am still inclined to agree, but when I took a close look at 2550.407d-5, the definition of the term “qualifying employer security” says:

(a) In general. For purposes of this section and section 407(d)(5) of the Employee Retirement Income Security Act of 1974 (the Act), the term “qualifying employer security” means an employer security which is:

(1) Stock; or

(2) A marketable obligation, ...

The rest of the section talks about the requirements for item (2), not for item (1).

[401_noob]

For what its worth, FAB 2008-04 says that non-qualifying assets which require the additional 100% bonding are described in 29 C.F.R. § 2520.104-46.

It goes on to provide this FAQ link: https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/faq_auditwaiver.pdf 

[401_noob]

So i just read § 2520.104-46 and it didn't describe non-qualifying assets, but it did say that ER securities, as defined in §407d-5 are qualified assets.

 

 

(ii) For purposes of paragraph (b)(1), the term “qualifying plan assets” means:

(A) Qualifying employer securities, as defined in section 407(d)(5) of the Act and the regulations issued thereunder;

[ESOP Guy]

It has always been my understanding that ESOPs with less then 100 participants could count on the audit exception rule without the extra fidelity bonding if all it has was ER stock.  The employer stock is a qualifying asset.