Bonding

[Young Curmudgeon]

I have inherited a plan which has been historically told they do not need a bond since all the participants (four in total) are Trustees.   I do not see an exclusion from the bonding requirement for this situation.   Only three of the Trustees are owners and the plan files full 5500 due to non-qualifying assets.    

The bonds I have seen do not cover Trustee benefits in the event of a loss so is this the roundabout logic?  Since none of them are protected by a bond, they do not need the bond?

If the plan were 100% qualifying assets, I would not be concerned.   However,  it is 70% non-qualifying assets.  If they are not exempt from bonding, they will have to get an auditors opinion if caught. Thoughts?  

[ratherbereading]

I think they need a bond. Here's a good article on the subject...http://www.401khelpcenter.com/401k/kalish_erisa_bond.html#.Wru_omc5CUk

[Peter Gulia]

Beyond other reasons, consider that not maintaining at least the fidelity-bond insurance required under ERISA section 412 might be a Federal crime.

http://uscode.house.gov/view.xhtml?req=(title:29

 

[Kristina]

Because there is a common law employee (or a non-owner employee) regardless of whether he is a Trustee or not means the ERISA Title I requirement for the bond applies.

If they hire more employees will those employees have to serve as Trustees too?

[Larry Starr]

Just to pile on, what they were told before is utter nonsense and easily shown to be incorrect. You should also check whether you need to amend the 5500s (besides getting the appropriate bonding in place).

[RatherBeGolfing]

30 minutes ago, Kristina said:

If they hire more employees will those employees have to serve as Trustees too?

Sorry.... Couldn't resist...

[austin3515]

On 3/28/2018 at 12:26 PM, Fiduciary Guidance Counsel said:

Beyond other reasons, consider that not maintaining at least the fidelity-bond insurance required under ERISA section 412 might be a Federal crime.

Well that's a position I have never heard before.  No one is going to jail over a fidelity bond...

[Larry Starr]

I don't believe it is a Federal crime.  It is a fiduciary breach.

Failure to have a bond is a breach of ERISA’s fiduciary rules. As with all other fiduciary violations, a fiduciary is liable for losses to the plan resulting from the breach, i.e., the failure to have a bond.

The consequences of failing to have a bond will vary from having to obtain a bond to a court order to pay the plan for losses resulting from failing to have a bond.