Understanding Bonds

March 17, 2018

Financial

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An Information of the 401K Fidelity Bond

It was in the year 1974 that the ERISA or the Employee Retirement Income Security Act was actually enacted to regulate various types of benefit plans for the employees. The ERISA section 412 as well as the regulated regulations demand that each fiduciary of an employee benefit plan and also every individual who deals with funds or the other property of such plan has to be bonded.

The bonding requirements of the ERISA are needed to protect the benefit plans from risk of such loss as a result of fraud or dishonesty of the people who handle those funds or any other property. In the ERISA, those individuals who would handle the funds or property of the employee benefit plan are referred to as plan officials. The Act certainly demands that there should be fidelity bond that must be placed to be able to cover the fiduciary or the ones responsible when it comes to managing the plan and the people who are going to handle the property of the plan and the funds. Those fidelity bonds are there to provide protection to the plans from fraud or dishonesty which are committed by the people who are actually associated with them.

It is required that every plan official should be bonded for 10 percent of the amount of such funds that one would handle. In various cases, the maximum bond value that may be required under the ERISA with respect to such plan official is half a million dollars for every plan. But, higher limits may also be purchased. But for the plan officials who are holding such employer securities, then the largest bond amount offered is $1,000,000.

Know that the employee benefit plans with over five percent of such non-qualifying plan assets which are held in limited partnerships, collectibles, artwork, real estate, mortgages or the securities of the closely-held companies and they are held outside of such regulated institutions like the bank, registered broker-dealer, insurance company or other organizations which are authorized to serve as trustee for those individual retirement accounts, those plan sponsors must do one of these things. One needs to make sure that the bond amount is 100 percent of value of those non-qualifying assets or one can also arrange for such annual full-scope audit in which the CPA is going to physically confirm the existence of those assets at the start and the end of that plan year.

401K has worked together with Colonial Surety Company that is recognized as a leader in 401K fidelity bonds or ERISA fidelity bonds. They are a popular national insurance company that functions in all 50 states and other US territories and they have already been offering insurance products since the year 1930. They are actually the biggest direct seller of fidelity bonds in the US.

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