Things to Know Regarding the 401K Fidelity Bond
Actually, in 1974 the ERISA or that Employee Retirement Income Security Act was being enacted to be able to regulate many types of benefit plans for workers. 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. The persons who would handle the funds or property of an employee benefit plan are known as plan officials in the ERISA. 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. These fidelity bonds are meant for protecting the plans from fraud or dishonesty committed by the persons who are linked to 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 a lot of cases, the largest bond amount which is necessary under the ERISA is $500,000 for every plan. But, higher limits may also be purchased. A maximum bond amount of $1,000,000 dollars for those plan officials of plans holding the employer securities is implemented.
You must know that such employee benefit plans with more than 5 percent of non-qualifying plan assets that are held in the limited partnerships, the mortgages, artwork, collectibles, real estate or securities of such closely-held companies and they are also held outside the regulated institutions such as the registered broker-dealer, the bank, insurance company or other kinds of organizations that are actually authorized in serving as trustee for the retirement accounts, plan sponsors should be doing one of these. It is required to make sure that the amount of the bond is a full equivalent of the value of those non-qualifying assets or an annual full-scope audit may be arranged in which the CPA is going to physically confirm the existence of those assets from the start to the end of the plan year.
The 401K has actually partnered with the Colonial Surety Company which is a leader of ERISA or 401K 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. Know that they are the biggest direct seller of the fidelity bonds in the United States.
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