The Employee Retirement Income Security Act (ERISA) is a federal law requiring that all pension plan trustees and anyone else who handles pension funds must obtain a fidelity bond. This bond covers the plan in the event of embezzlement and theft. It is important to note that this bond does not provide coverage in the event poor investment choices result in losses. According to the ACT, the amount of coverage necessary for each plan is equal to no less than 10 percent (10%) to the number of plan funds held, subject to a $500,000 maximum bond amount.
The U.S Congress passed the Employee Retirement Income Security Act in 1974 to prevent the mishandling of employee benefit plans, such as a pension fund or 401K plan. Under the act, all plan trustees must be bonded at an amount equal to 10% of the value of the plan’s qualified assets, with a minimum bond amount of $1000.
The insurance company, as well as the amount of the bond, must be stated in the form filed annually with the Internal Revenue Service. The amount of the bond must be at least 10% of the pension plan’s assets or $1000, whichever is the greatest amount. ERISA bonds also known as Fidelity Bonds can be issued on the same day of receiving a signed application.