A retirement plan is required, in accordance with Section 412(b) of ERISA (Employee Retirement Income Security Act), to be covered by a fidelity bond which covers all fiduciaries and any other individuals who handle Plan assets. This bond is a form of insurance that protects participants and beneficiaries from dishonest acts of fiduciaries. Following are a few important insights you can use to ensure proper coverage.

Some retirement plans are excluded from the fidelity bond requirement. This generally includes unfunded plans and plans sponsored by employers with only owners and/or spouse(s) as sole plan participants. A plan is considered unfunded for bonding purposes only if all benefits are paid directly out of any employer’s or union’s general assets. [ 29 C.F.R. Section 2580.412-2] For “owners only” plans employers should take caution when there are adult children who are not business owners. If there are no common law employees the Department of Labor (DOL) regulations excludes the plan from the bonding requirement. However, if the plan allows employee contributions and the adult children are not partners with their parents they are considered common law employees. [ DOL Reg § 2510.3-3(d)(1)(ii) ]

The term “handle” does not specifically mean having physical contact with the funds or property of the plan. A person would qualify as handling funds when there is a risk that such funds or property could be lost due to fraud or dishonesty acting alone or in collusion with others. For example , physical contact with cash, checks or other property, power to transfer funds from the plan to oneself or a third party, disbursement authority, authority to sign checks or decision making responsibility over activities that require the bonding. It’s very important to understand who is considered handling plan assets especially when there are committees involved.