If you sponsor a 401(k) or other retirement plan, there’s a good chance the Department of Labor (DOL)
expects you to have something called an ERISA bond. It sounds like a Wall Street thriller,
but it’s really a very specific type of protection for your employee benefit plan and skipping it can turn
a routine DOL review into a very bad day.

In plain English, ERISA bonds (also called ERISA fidelity bonds) protect plan assets from theft or
fraud by the people who handle that money. They are required by federal law under the Employee Retirement Income
Security Act of 1974 (ERISA), and the rules are detailed enough that many employers, especially smaller ones,
get them wrong.

Let’s walk through what ERISA bonds are, who needs one, how much coverage is required, and the common mistakes
that trip up well-meaning plan sponsors with a little bit of humor to keep all the legalese from putting you
to sleep.

ERISA in a Nutshell: Why Bonds Exist in the First Place

ERISA was passed in the 1970s after a series of scandals and failures in private pension plans. Congress and the
DOL were worried that employees were spending their entire careers paying into plans that might be mismanaged,
abused, or flat-out looted. The goal of ERISA is to protect employee benefits mainly retirement plans, but also
certain health and welfare plans by setting standards for plan governance, reporting, and fiduciary behavior.

One of those protections is the ERISA fidelity bond requirement. The idea is simple: if someone who
has access to plan assets steals or misuses them, the bond steps in to reimburse the plan (not the employer, not
the fiduciary the plan and its participants).

What Is an ERISA Bond?

An ERISA bond is a special type of fidelity bond required by ERISA. It is not the same as a general
crime policy, directors and officers (D&O) insurance, or fiduciary liability insurance.

In practice, an ERISA fidelity bond:

• Insures the plan against loss due to fraud or dishonesty (for example theft, embezzlement, forgery, larceny).
• Covers the acts of people who “handle funds or other property” of the plan.
• Must meet specific DOL requirements regarding coverage amount, insurer, and form.

If a plan fiduciary or other covered person runs off with plan money, the ERISA bond reimburses the plan up to
the bond limit. The bond company can then chase the wrongdoer. This way, participants’ retirement savings are not
permanently gone because one person decided to be creative with other people’s money.

Who Actually Needs an ERISA Bond?

ERISA requires that every person who “handles funds or other property” of an ERISA-covered plan be bonded,
unless a specific exemption applies (for example, certain governmental or church plans, some unfunded plans, or
plans maintained outside the United States).

“Handling” plan funds is defined broadly. It can include:

• Physically receiving or disbursing plan contributions or distributions.
• Having authority to sign checks or transfer funds from plan accounts.
• Supervising or controlling people who actually handle the money.

Common examples of people who may need to be covered by an ERISA bond include:

• Plan trustees.
• HR or payroll employees who transmit contributions to the plan.
• Company officers who approve plan disbursements.
• Third-party administrators (TPAs) or recordkeepers, depending on how funds are handled.

Note that service providers often carry their own ERISA bonds if they “handle” plan assets, but the plan sponsor
is still responsible for making sure coverage is adequate and properly documented.

Which Plans Are Covered by ERISA Bond Rules?

In general, ERISA bond rules apply to employee benefit plans that are subject to ERISA, such as:

• 401(k) and 403(b) retirement plans that hold employer or employee contributions.
• Profit-sharing and money purchase pension plans.
• Defined benefit pension plans.
• Certain employee stock ownership plans (ESOPs).

Some types of plans are typically exempt from the ERISA bonding requirement, including:

• Governmental plans.
• Certain church plans.
• Plans that are completely unfunded and pay benefits solely from the employer’s general assets.

If you are not sure whether your plan is subject to ERISA (and therefore needs an ERISA fidelity bond), it’s
worth confirming with ERISA counsel or your benefits advisor. “We didn’t know” is not a great defense if the DOL
comes knocking.

How Much ERISA Bond Coverage Do You Need?

The required ERISA bond amount is one of the most common areas of confusion. ERISA’s general rule is:

• Each person who handles plan funds must be bonded for at least 10% of the amount of funds they handled in the prior year.
• There is a minimum bond amount of $1,000 per plan.
• For most plans, the maximum required bond amount is $500,000 per plan official.
• For plans that hold employer securities (for example, ESOPs), the maximum required bond amount increases to $1,000,000.

Example: Calculating Your ERISA Bond Limit

Suppose your 401(k) plan held $2,000,000 in assets as of the last day of the prior plan year. Ten percent of that
is $200,000, so your ERISA bond must be at least $200,000. If the plan later grows to $6,000,000, you would need at
least $600,000 in coverage but because the DOL’s usual cap for most plans is $500,000, your required bond would
be $500,000.

For a plan with employer stock, the same $6,000,000 in assets would still require at least $600,000 of coverage,
but the cap is now $1,000,000. Many plan sponsors choose to match the full 10% up to the higher cap for added
comfort and cleaner audit results.

Keep in mind that these amounts are per plan and often tied to the figures reported on
Form 5500, the annual return filed under penalty of perjury. Reporting a bond amount that is too low is
something DOL and IRS agents notice quickly.

What ERISA Bonds Cover and What They Don’t

An ERISA fidelity bond is designed for one thing: losses due to fraud or dishonesty by people who handle
plan assets. That typically includes:

• Theft or embezzlement of contributions or plan assets.
• Forgery or alteration of checks or electronic transfers.
• Other intentional, dishonest acts that result in money disappearing from the plan.

Just as important is what the bond does not cover:

• Bad investment decisions or market losses.
• High or unreasonable fees that were nonetheless properly disclosed.
• Errors in judgment that do not involve intentional dishonesty.
• Lawsuits alleging breach of fiduciary duty where no theft occurred.

In other words, an ERISA bond protects against outright stealing, not every possible bad outcome. This is why many
plan sponsors also look at fiduciary liability insurance as a separate layer of protection.

ERISA Bonds vs. Fiduciary Liability Insurance

The terminology in this space can be confusing, and the words “fidelity” and “fiduciary” sound similar enough to
cause problems. Here’s the key distinction:

• ERISA bond (fidelity bond): Required by ERISA. Protects the plan against loss due to theft,
  fraud, or dishonesty by those who handle plan assets.
• Fiduciary liability insurance: Optional but often recommended. Protects the company and individual
  fiduciaries against claims that they breached their fiduciary duties (poor investments, inadequate monitoring of
  fees, failure to follow plan documents, and so on).

Many employers mistakenly assume that having fiduciary liability insurance or a corporate crime policy satisfies
the ERISA bonding requirement. It usually does not. The DOL expects a specific ERISA fidelity bond that names
the plan as the insured and meets the statutory standards.

Think of it this way: the ERISA bond protects participants’ money from thieves; fiduciary liability insurance
protects you when participants’ lawyers think you were the thief (even if you weren’t).

Common ERISA Bond Mistakes (and How to Avoid Them)

Even diligent plan sponsors can misstep on ERISA bond compliance. Here are frequent pitfalls:

• Assuming any blanket bond is good enough. A generic employee dishonesty or crime policy may not
  meet ERISA’s requirements. The bond must specifically protect the plan and comply with the DOL’s rules.
• Not bonding everyone who handles funds. If the CFO is bonded but the payroll manager who actually
  transmits contributions is not, you may still be out of compliance.
• Underestimating the required coverage amount. As plan assets grow, the bond should be increased to
  maintain at least 10% coverage, subject to the applicable minimums and caps.
• Forgetting about employer securities. If your plan holds employer stock, you may need up to
  $1,000,000 in bond coverage rather than the usual $500,000 cap.
• Failing to review bonds for service providers. If your TPA or recordkeeper handles plan assets,
  you need to confirm that their bond is adequate and that the plan is properly included.

A simple annual checklist bond in place, correct amount, correct parties, correct form goes a long way toward
keeping the DOL happy and your plan participants protected.

How to Obtain an ERISA Bond

The process for obtaining an ERISA bond is usually straightforward, especially for small and mid-size plans.
Many insurers and surety companies sell ERISA fidelity bonds specifically designed to meet DOL standards.

When shopping for an ERISA bond, make sure:

• The bond provider is an approved surety (often listed on the U.S. Treasury Department’s Circular 570).
• The plan is clearly named as an insured or an obligee under the bond.
• The bond amount matches your required coverage based on plan assets.
• The coverage extends to all individuals who “handle” plan funds.
• The bond cannot be canceled or reduced without appropriate notice.

Many recordkeepers, TPAs, and retirement plan platforms also partner with bond providers and can point you to
vetted options, though the responsibility to comply ultimately rests with the plan sponsor.

Why ERISA Bonds Matter During Audits

ERISA bond compliance is low-hanging fruit for regulators and auditors. On Form 5500, the DOL specifically
asks whether the plan has an ERISA bond and, if so, the amount. If the answer is “no bond” or the number looks too
low for the reported assets, that can trigger questions, deficiency notices, or further investigation.

In addition, independent auditors of large plans routinely review bonding arrangements. A missing or inadequate
bond can show up as a finding in the audit report, which is then filed along with Form 5500 an outcome no plan
sponsor wants to explain to regulators or participants.

The good news? Compared with the size of most retirement plans, ERISA bond premiums are relatively modest.
For the price of a small annual premium, you get peace of mind, regulatory compliance, and an extra layer of
protection for your employees’ future.

Lessons from the Field: Real-World ERISA Bond Experiences

To make this less abstract, let’s look at how ERISA bonds play out in real life. These are composite scenarios
based on common patterns that benefits consultants, auditors, and insurers see over and over.

The Small Business That “Didn’t Realize” It Needed a Bond

A small manufacturing company sets up its first 401(k) plan. The owner is proud the plan will help retain talent
and finally looks like the kind of benefit package bigger competitors offer. The payroll provider handles the
contributions, the investments are in low-cost index funds, and enrollment goes smoothly.

Three years later, the company’s CPA tells the owner that because the plan now has more than 100 participants, it
needs a full audit. The auditor asks for proof of the ERISA fidelity bond. The owner stares blankly.

After some scrambling, they learn that there is no ERISA bond in place. They manage to purchase one quickly going
forward, but the auditor must report the lack of proper bonding in prior years as a finding. While the DOL does
not always impose penalties in these situations, the company has now drawn regulatory attention all because of a
relatively inexpensive requirement that was overlooked.

Lesson: Build ERISA bond compliance into your plan’s “day one” checklist and revisit it annually as the plan
grows.

The Plan with Employer Stock That Needed More Coverage

A technology company offers a 401(k) plan with an employer stock fund option. Over time, employees pile into the
company stock, and the plan’s total assets (including that stock) increase significantly. The company’s ERISA bond
was originally set at $200,000 when the plan was smaller.

Years later, an internal legal review discovers that the plan now holds employer securities and that, based on
current asset levels, the ERISA bond should have been increased to $1,000,000. While no theft has occurred, the
plan has technically been under-bonded for years.

The company immediately boosts the bond and documents the correction, but the situation is a reminder that plan
features like the ability to invest in employer stock can change the required maximum bond amount. It’s not a
“set it and forget it” exercise.

When Fiduciary Liability Insurance Was Not Enough

Another employer, a professional services firm, done its homework and purchased fiduciary liability insurance to
protect the company and its plan committee. They believed this sophisticated policy satisfied all coverage needs,
including those under ERISA.

During a review, their advisor points out a crucial gap: fiduciary liability insurance covers legal claims of
mismanagement but does not automatically satisfy the ERISA fidelity bond requirement. Worse, the policy
is written to protect the company, not the plan assets themselves, and it does not meet the DOL’s rules for an
ERISA bond.

The firm quickly procures a separate ERISA bond and updates its compliance documentation, but it’s a near miss.
Had an employee stolen funds during the gap, the plan might not have had the protection ERISA expects.

Practical Takeaways from These Experiences

Across these scenarios, a few themes repeat:

• Put ERISA bonds on a recurring calendar. Review bond coverage at least annually, ideally when preparing Form 5500.
• Tie coverage to real numbers. Use end-of-year asset values and plan features (like employer stock) to determine the appropriate bond limit.
• Do not rely on assumptions. Verify that your bond explicitly references ERISA and names the plan as an insured party.
• Coordinate with advisors. Involve your TPA, recordkeeper, auditor, and benefits counsel so everyone sees the same requirements and documents.

Most of all, treat ERISA bonds as part of your broader retirement plan risk management strategy. They are not
glamorous, but they are one of the cheapest ways to protect your employees’ retirement savings and demonstrate to
regulators that you take your fiduciary responsibilities seriously.

Conclusion: A Small Bond with Big Implications

ERISA bonds don’t get the attention of investment menus, Roth features, or employer matches, but they are a core
piece of keeping a retirement plan compliant and trustworthy. If your plan is subject to ERISA and holds assets,
you almost certainly need an ERISA fidelity bond that:

• Covers every person who handles plan funds.
• Provides at least 10% coverage of plan assets, with the right minimum and maximum limits.
• Is issued by a qualified surety and properly names the plan.
• Works alongside (not instead of) fiduciary liability insurance.

Take an hour to review your bond, your plan assets, and your Form 5500 disclosures. That small investment of time
can save you major headaches later and help ensure that your employees’ retirement benefits are as protected as
they think they are.