Fidelity Bonds > $500K - record amt or $500K?

For sponsors who have bond coverage greater than statutory limit of $500,000, I'm curious if 5500's are generally prepared with the actual coverage amount or the higher amount?

Does it matter? Not necessarily for audit purposes, but it does matter when the 5500 signer cares.

FWIW:  I just put the actual bond amount.

The Form 5500 Instructions tell a filer to “enter the aggregate amount of fidelity bond coverage for all claims.”

Some fiduciaries consider it prudent to get more fidelity-bond insurance than ERISA § 412 alone commands.

A person who signs a Form 5500 declares, under penalties of perjury and subject to other penalties, that the report “is true, correct, and complete.”

A Form 5500 report should show the actual coverage amount.

Also, don't forget that the statutory maximum is increased to 1 million if the plan holds employer securities.

Peter

So, if the bond is 10k and have automation inflation guard i.e. automatically covering 10% of the assets, are you saying "put in 10k on the 5500 form even if the assets are, say, 2M and automatic coverage is 200k?". I put in 200k because that is the actual amount of the bond per provisions and this is "true, correct and complete".

Hopefully I did not misunderstand your statement.

56 minutes ago, Jakyasar said:

So, if the bond is 10k and have automation inflation guard i.e. automatically covering 10% of the assets, are you saying "put in 10k on the 5500 form even if the assets are, say, 2M and automatic coverage is 200k?". I put in 200k because that is the actual amount of the bond per provisions and this is "true, correct and complete".

In your example, the coverage amount is 200k.  You should report 200k.  

In OPs example, the coverage amount is more than the required amount.  You still report the coverage amount, not the required amount.  For example, if the required bond is X and the bond coverage is X+100k, you report X+100k.

Jakyasar, I don’t think you misunderstood.

TPApril’s query supposes a situation in which the plan has more coverage than ERISA § 412 requires and more than $500,000 (or, as Belgarath mentions, $1 million for a plan with employer securities, or for a pooled-employer plan).

If a fidelity-bond insurance contract provided, as at a relevant date, coverage of 10% of the plan’s first $5 million in plan assets, one would report that coverage amount.

23 hours ago, Peter Gulia said:

A person who signs a Form 5500 declares, under penalties of perjury and subject to other penalties, that the report “is true, correct, and complete.”

Peter, do you think anyone would get in trouble if they report $500k bond when it was actually $2MM?

I can't imagine the DOL would attempt to assert penalties if the reported bond is at least sufficient to comply with the bonding requirements. But, what do I know...they work in mysterious ways, their wonders to perform...

For my learning, writing, and teaching about professional conduct, I’ve thought about how an advisor discerns whether it’s appropriate (or professionally irresponsible) to advise about the probabilities of detection and of enforcement.

If my client asks (even in an implied request) for my sense about probabilities of detection and of enforcement, I render candid advice, even if doing so confirms that something is seldom or almost never enforced.  But I also tell clients why it’s morally right, and usually business-smart, to obey law, especially if one can do so with little harm or expense to one’s activities.

I’ve never had a plan’s administrator ask me about reporting a fidelity-bond coverage amount other than the actual amount.

When I was inside counsel to a recordkeeper—one that processed tens of thousands of Form 5500 reports, I advised about internal logic and ordering rules for presenting draft answers on points for which a customer had not completed the recordkeeper’s information request.

Doing no research on your question, I imagine it’s unlikely a plan’s administrator would face Federal criminal, EBSA, or IRS enforcement if the only violation is misreporting the fidelity-bond coverage amount.

But I have seen EBSA investigations look into a service provider’s business methods for drafting its service recipients’ Form 5500 reports.

That a Form 5500 report might show more fidelity-bond coverage than ERISA § 412 requires is not always idle information.  There are situations in which the Labor department could use that information to consider whether and how to pursue action on fiduciary breaches and other violations.

We report the actual amount of the coverage (5M) on our 5500's, and we have had a few Govt audits over the years.  It has never been an issue. 

If I had to bet, I bet this question arises from a business that might often get asked about E&O or bonding amounts from other businesses. It's not uncommon in those scenarios to hold limits much higher than might be revealed to someone that might eventually be looking to recover in an adversarial relationship.

On 8/17/2021 at 9:10 AM, Bill Presson said:

If I had to bet, I bet this question arises from a business that might often get asked about E&O or bonding amounts from other businesses. It's not uncommon in those scenarios to hold limits much higher than might be revealed to someone that might eventually be looking to recover in an adversarial relationship.

Makes sense for this particular business actually, but question has more to do with how a prior TPA completed the 5500, reporting the lower amount of $500,000 rather than actual bond amount.