business Fidelity Bond vs. Fiduciary Insurance: Which One is Needed for my Employee Benefit Plan? August 08, 2024 Plan sponsors…understand the difference between fiduciary liability and fidelity bond insurance. Both serve to mitigate risk for fiduciaries and are critical aspects of an employee benefit plan…but the DOL only requires fidelity bond. Read on. Is fidelity bond insurance and fiduciary insurance the same thing? Should you have one over the other? What are the costs associated? We answer these questions and more here. Fidelity bond insurance: The Basics The Employee Retirement Income Security Act (ERISA) REQUIRES all employee benefit plans to have a fidelity bond for any plan fiduciary and other person who handles the plan assets. A fidelity bond protects the plan and its participants from losses resulting from dishonesty or fraud. The fidelity bond must name the plan as the insured party and extend coverage to individuals responsible for handling plan funds or property. Anyone whose role could lead to loss of plan assets due to fraud or dishonest acts must be included in the coverage. The bond is required to cover various types of losses, including but not limited to: EmbezzlementForgeryLarcenyMisappropriationTheftWillful misapplicationWrongful abstractionWrongful conversion How much fidelity bond coverage is required? At the beginning of each plan year, the coverage amount of the bond must be at least 10% of the amount of plan assets the covered individuals handled. The minimum bond amount is $1,000, and in most cases, is not required to be more than $500,000. If the plan holds employer stock, this goes up to $1,000,000. Plan assets can be used to pay for the fidelity bond. An employee who handles $5,000 in plan assets, for example, would be bonded for $1,000. What is fiduciary insurance? Fiduciary insurance, on the other hand, is optional. It insures and helps protect plan sponsors and plan fiduciaries against losses caused by breaches in fiduciary responsibilities. Fiduciary insurance can be used for: Attorney feesCourt-awarded damagesInvestigation costsNegotiated settlementsThe costs to make participants whole There is a list of approved vendors to choose from when it comes to fidelity bonds, but this is not the case for fiduciary insurance. It’s a good idea to compare options to find the best policy and price for your company. Premiums can cost anywhere from a few hundred to a few thousand dollars per year. What are the benefits of having fiduciary insurance? You may be wondering if fiduciary insurance is really necessary, especially factoring in the added cost. Benefits include: Without insurance, in the event of a breach of fiduciary duty, you could be held personally liable.Without fiduciary insurance, you could jeopardize your fiduciaries' personal savings, homes, and other valuable assets, as they might be forced to surrender these to address damages or resolve claims.Errors and Omission (E&O) insurance policies typically do not safeguard plan fiduciaries’ personal property.
