Fidelity Bond required?

Good morning!

I have a plan in which the only employees/participants are a husband/wife and 3 children.

The plans assets are held in FBO self directed accounts for each, but there are also non-qualified assets (mortgages and some other real estate) which are segregated in the owner (husband's) name so his account is the only one affected by their value.

Is he required to have a fidelity bond for the non-qualified assets?  I am not sure as there are no employees other than family members.

Thank you very much!

There are two separate issues - the "normal" bonding requirement, and the "small plan audit exception" bonding requirement. Assuming all of the children are not partners in this as business as an unincorporated partnership, then bonding is required.

In order to claim the small plan audit exemption, then if the "nonqualifying assets" are more than 5% of the assets, the bond must be no less than the value of the nonqualifying assets. Cheaper to get the increased bonding than to do the audit!

Also, maybe check to see if the plan can file a 5500-EZ.  I think for an EZ filing, no fidelity bond is required for the nonqualifying assets.  If the plan is required to file a 5500-SF (or 5500), I think the fidelity bond is required.  Doesn't matter that all of the nonqualifying assets are in the owner's name only and in his account only.

If the plan covers any of the children, it ceases to be a "one-participant plan."

We file the Form 5500 and Schedule I to report the value of the mortgages.

If this was just a husband/wife plan, they would be exempt from the additional bonding requirements?

The children are not partners, and the mortgages are about 30% of plan assets.

Thanks all.