John E. Chapman Chief Executive OfficerRetirement plan sponsors have significant fiduciary responsibilities under ERISA. Understanding the distinct protections provided by an ERISA Fidelity Bond and Fiduciary Liability Insurance (FLI) can help protect plan assets while also limiting personal financial exposure.
ERISA Fidelity Bond: Required by Law
An ERISA Fidelity Bond is required by federal law for individuals who have access to or handle retirement plan funds. It protects the plan against losses resulting from theft, fraud, embezzlement, or other dishonest acts committed by those entrusted with plan assets.
Key compliance requirements
- Bond coverage must equal at least 10% of plan assets.
- Most plans require coverage between $1,000 and $500,000.
- The bond must be issued by a Treasury-approved surety company.
- Coverage must remain active throughout the entire plan year.
- Bond coverage must be accurately reported on Form 5500 each year.
Some of the most common compliance mistakes occur when bond coverage isn’t updated to reflect growing plan assets, allowing coverage to expire, or the bond is issued in the wrong plan or company name.
Fiduciary Liability Insurance: Protects You Personally
While an ERISA Fidelity Bond protects plan assets from losses caused by dishonest acts, it does not protect fiduciaries from personal liability. Fiduciary Liability Insurance helps protect plan sponsors and other fiduciaries from claims alleging mistakes, oversights, or breaches of their fiduciary responsibilities.
Fiduciary Liability Insurance may cover:
- Administrative mistakes and enrollment errors
- Investment oversight and mismanagement claims
- Excessive fee litigation
- Cybersecurity and data protection failures
- Legal defense costs and certain settlements
Importantly, many standard business insurance policies exclude fiduciary-related claims.
Why Both Matter
An ERISA Fidelity Bond and Fiduciary Liability Insurance serve different purposes:
ERISA Fidelity Bond
- Required by federal law
- Protects plan assets
- Covers fraud, theft, and dishonesty
Fiduciary Liability Insurance
- Not required, but may be appropriate
- Protects sponsors’ personal assets
- Covers fiduciary errors, oversight failures, and participant lawsuits
Bottom Line:
An ERISA Fidelity Bond protects retirement plan assets from losses caused by fraud or dishonesty, while Fiduciary Liability Insurance helps protect plan sponsors and fiduciaries from personal liability. Together, they address different risks and provide broader protection for those responsible for overseeing a retirement plan.
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