An Information of the 401K Fidelity Bond
It was actually in the year 1974 on which the ERISA or such Employment Retirement Income Security Act was implemented for regulating the many kinds of benefit plans for workers. ERISA section 412 and the regulated regulations require that the fiduciary of such employee benefit plan and each person who manages the funds or a property of another must 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 necessitates that there has to be a fidelity bond which should be placed to cover the fiduciary or those responsible in managing the plan as well as those individuals who would handle the funds or property. Such fidelity bonds are actually intended to protect those plans from dishonesty or fraud committed by those individuals who are 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, there is a maximum bond amount of a million dollars for the plan officials of those plans which hold the employer securities.
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. Actually, they are a national insurance company that is able to render services to all 50 states with their license and in all of the US territories and they have been providing such insurance products for several decades now. Know that they are the biggest direct seller of the fidelity bonds in the United States.