Which Types of Plans Are Required to Maintain a Fidelity Bond?

Under the Employee Retirement Income Security Act, the plans required to maintain a fidelity bond are private-sector employee benefit plans that hold assets in a separate trust. That sweeps in retirement plans such as 401(k)s, pensions, profit-sharing plans, and ESOPs, along with any health or welfare plan that is funded through a trust. Plans paying benefits straight from an employer’s general assets, government plans, and church plans fall outside the requirement.

Plans That Must Carry a Bond

The bonding rule in 29 U.S.C. § 1112 reaches every ERISA plan that accumulates assets in trust to pay future benefits.¹ In practice, that covers the retirement arrangements most employers sponsor:

Traditional and Roth 401(k) plans, which hold participant deferrals and employer matches in trust.
Defined benefit pension plans, which pool employer contributions to fund promised benefits.
Profit-sharing plans, where employer contributions accumulate in trust and are allocated to participant accounts.
403(b) plans that use a custodial account or trust to hold assets separately from the employer.
Employee stock ownership plans, which hold employer securities in trust for participants.

Health and welfare plans are also covered when they are funded. A welfare plan is funded if it holds assets in a trust rather than paying claims directly out of the employer’s checking account. A dental or vision plan that routes employee contributions through a trust before paying claims needs a bond. So does a self-insured health plan that channels contributions through a trust.¹

Plans That Are Exempt

Several categories of plans sit outside the bonding rule, either because they have no separate assets to protect or because ERISA does not apply to them at all.

Unfunded Plans

When benefits come straight from the employer’s or union’s general assets with no separate trust or fund, there are no distinct plan assets to misappropriate, and no bond is required. Typical examples include employer-paid health insurance where the insurer handles claims, vacation pay programs, and basic severance plans paid from operating funds.²

Government and Church Plans

Government plans and church plans are not subject to Title I of ERISA, so the bonding rules do not apply to them.² There is one wrinkle for church plans. A church plan can affirmatively elect ERISA coverage under 26 U.S.C. § 410(d). Once it does, the exemption falls away and the plan becomes subject to the full set of Title I obligations, including the fidelity bond.³

Certain Regulated Financial Institutions

Banks, trust companies, and insurance companies acting as plan fiduciaries can qualify for a statutory exemption if they are organized under federal or state law, authorized to exercise trust powers or conduct an insurance business, subject to federal or state supervision, and maintain combined capital and surplus of at least $1,000,000. Registered brokers and dealers subject to the bonding rules of a self-regulatory organization are also exempt. These entities already operate under financial oversight that duplicates what an ERISA bond would add.¹

Who the Bond Has to Cover

Within a covered plan, every person who handles plan funds or other property must be bonded. ERISA calls them “plan officials,” and the label turns on what someone actually does, not on a job title. A person handles plan assets if their role creates a risk that money could be lost to fraud or dishonesty.² That typically includes anyone who:

Has physical contact with plan cash, checks, or similar property.
Can transfer plan funds to themselves or a third party.
Can sign checks or other negotiable instruments drawn on plan accounts.
Can authorize benefit payments or investment purchases.
Holds passwords or credentials for plan asset accounts.

Someone whose work is purely administrative, like data entry or filing, and who cannot touch or move plan money, generally does not need to be bonded.

The rule applies to outside providers too. Third-party administrators, recordkeepers, and investment advisors whose duties give them access to plan funds or decision-making authority over plan assets must be bonded. The plan does not have to buy the bond for them. The provider can carry its own bond naming the plan as the protected party, or the plan and provider can agree to add the provider to the plan’s existing bond.²

Responsibility for compliance is shared. Each person who handles plan assets must make sure they are bonded, and anyone who can direct others to perform handling functions is also responsible for making sure those people have coverage. A trustee, a plan administrator, and a service provider can all be on the hook at the same time.²

How Much the Bond Must Be

The required amount is at least 10 percent of the plan funds handled during the preceding reporting year. A plan that handled $2,000,000 last year must carry a bond of at least $200,000. For a brand-new plan with no prior reporting year, the calculation uses an estimate of funds to be handled in the current year.¹

The statute puts a floor and a ceiling on that figure:

Minimum of $1,000. Even the smallest covered plan carries at least this much protection.
Standard maximum of $500,000. Most plans are not required to carry more.
Higher maximum of $1,000,000 for plans that hold employer securities, such as company stock, and for pooled employer plans.¹

The amount must be recalculated at the start of each plan fiscal year to reflect changes in the value of assets handled.

What the Bond Itself Must Look Like

Buying a bond of the right size is only part of compliance. ERISA and its regulations shape how the bond must be written.

Approved Surety Company

The bond must come from a corporate surety approved by the Secretary of the Treasury to write bonds for the federal government. The approved companies appear in Treasury Department Circular 570, which is updated each year. A bond from a company not on that list does not meet the ERISA requirement.¹

No Deductible

An ERISA fidelity bond must provide first-dollar coverage. It pays from the first dollar of loss up to the bond amount, and it cannot carry a deductible or any similar feature that shifts risk back onto the plan.⁴

Plan Named as the Insured

The plan itself has to be the named insured, not the employer or the plan administrator personally. If a loss occurs, the plan, and ultimately the participants, must be the party that receives the reimbursement.²

One-Year Discovery Period

After a bond expires or is canceled, the plan must have at least one year to discover and report losses that occurred while the bond was still in force. Some bonds include this period automatically, and others let the plan buy it. A replacement bond can satisfy the discovery requirement, but only if it provides the same coverage the old bond’s discovery period would have offered. If it does not, the arrangement falls short of ERISA.⁵

What Happens When a Covered Plan Has No Bond

Running a covered plan without the required bond is itself an ERISA violation. The statute makes it unlawful for a plan official to handle funds without being properly bonded, and equally unlawful for anyone with supervisory authority to allow unbonded handling.¹

ERISA does not attach a specific monetary penalty to a bonding failure, but the practical exposure is real. The Department of Labor’s Employee Benefits Security Administration checks bond compliance during plan investigations and audits using a dedicated bonding checklist.⁶ If a loss hits a plan that had no bond when one was required, the fiduciaries responsible for arranging coverage can face personal liability for the amount the bond would have paid.

One last point on scope. The bond protects the plan and its participants. It does not protect the person who committed the fraud, and it does not protect the fiduciary who failed to put coverage in place.²

1
Office of the Law Revision Counsel. 29 USC 1112 – Bonding
2
U.S. Department of Labor. Protect Your Employee Benefit Plan With an ERISA Fidelity Bond
3
Office of the Law Revision Counsel. 29 USC 1003 – Coverage
4
eCFR. 29 CFR Part 2580 – Temporary Bonding Rules
5
U.S. Department of Labor. Field Assistance Bulletin No. 2008-04
6
U.S. Department of Labor. Enforcement Manual – Fiduciary Investigations Program