Fidelity Bond Increases

[austin3515]

I recently wrote this memo regarding reporting a fidelity bond increase that took place in 2019 as of 12/31/2018.  I'm less concerned with whether it is what you would do, and more concerned with whether or not it fits within the gray zone of opinion.  Before I started writing the memo I was unsure, but as I completed it, I became convinced that not only was it ok, it was likely a preferred approach as a matter of providing valuable information to the reader.  Anyway let me know what you think,

The 5500 asks "during the plan year" did the Plan have a fidelity bond. We answered yes to that question because during the plan year there is a bond. The instructions are not specific regarding what bond amount must be reported (i.e. as of which date). For example, they could have said "enter the bond amount as of the beginning of the year” or “… as of the end of the year", etc. but they make no reference.  In fact they provide no guidance on how to report a bond that uses the ERISA Inflation protection (if anything required explanation as to applicable dates it would be this).  Based on this lack of guidance we are in a position where reasonable alternatives must be considered.  One other reasonable approach would be to allow the Employer to report the bond in effect as of the date of the filing of the 5500.  If a reader of a 5500 has more recent information regarding the value of the fidelity bond he or she will better be able to determine the level of protection the Plan has acquired.

[Bird]

The regs say the beginning of the year:

§2580.412-11   Statutory provision.

Section 13 requires that the amount of the bond be fixed at the beginning of each calendar, policy or other fiscal year, as the case may be, which constitutes the reporting year of the plan for purposes of the reporting provisions of the Act.

____________________________________

Who is the reader of your memo?

[austin3515]

Internal memo, just in the files.  In the old public accounting days for me "Memo to file" was a thing.

The language you referenced seems to be discussing how you determine whether the bond is adequate.  i.e. the determination of the adequacy of the bond is based on the reporting year.  Does it preclude reporting the value of the bond as of a different date? 

[RatherBeGolfing]

1 hour ago, austin3515 said:

Internal memo, just in the files.  In the old public accounting days for me "Memo to file" was a thing.

I was never part of the "old public accounting days", though I am old enough that I still learned accounting on green sheets in under grad...  Do green sheets even exist anymore?  Anyways, I still use "note to file" quite frequently.  As in, practitioners note that in the old days would transfer from one year end to the next rather than being part of the clients permanent file.

1 hour ago, austin3515 said:

The language you referenced seems to be discussing how you determine whether the bond is adequate.  i.e. the determination of the adequacy of the bond is based on the reporting year.  Does it preclude reporting the value of the bond as of a different date? 

The question is "during the plan year:"

It is reasonable to interpret that as anytime during the plan year, not strictly on day one. 

It would not be reasonable to interpret "during the the plan year" to include the period after the close of the year up until the filing of the 5500.  So if the bond was acquired or increased after the end of the year but before you file the 5500, the answer should still be "NO"

That said, I know at least one bond provider who will issue retroactive bonds.  If a a bond is purchased that retroactively covers a prior plan year, I would check "YES" 

[austin3515]

I want to be very clear about something.  I would NEVER say yes to that question if there was no bond in place for the plan year (unless the effective date was retro). The question is "Was there a bond in place during the Plan Year."  In my example I am indicating Yes which is completely not controversial.  As to the Amount the question has but one word and no explanation.

Anyway, I think it was an interesting discussion...

 

[Peter Gulia]

The January 10, 1975 temporary rules for ERISA § 412 (using rules made for § 13 of the Welfare and Pension Plans Disclosure Act of 1958) do not directly control how to respond to a Form 5500 query.  Yet in evaluating the strengths and weaknesses of different reporting positions one might consider those temporary rules (to the extent a rule is consistent with ERISA § 412).

 

If I were writing a memo and had research time to spend, I might research several sources, including the Federal Register notices about the development of Form 5500.

 

Without research, I might consider reporting the beginning-of-year coverage because that reporting would allow the Labor department to check, using only Form 5500 data, whether the coverage amount likely met the ERISA § 412(a) minimum.

 

Given the question’s ambiguity, several different good-faith reporting positions might be defensible.

[Bird]

3 hours ago, austin3515 said:

The language you referenced seems to be discussing how you determine whether the bond is adequate.  i.e. the determination of the adequacy of the bond is based on the reporting year.  Does it preclude reporting the value of the bond as of a different date? 

I was trying to find a way to politely say "I don't want to ignore you but don't care enough to think about it" but then I realized what you were saying...we just report the bond that was in place at any time during the year, presumably the highest (or only amount if it is a new bond).

[austin3515]

Polite on message boards??  That's novel concept :)  I think I like that!