An ERISA fidelity bond, with few exceptions, is required by federal law (ERISA) for the protection of plan assets from the dishonest acts of plan trustees. An Employee Stock Ownership Plan (ESOP) is not generally an exception. A hybrid of the ESOP, a “KSOP” is likewise subject to the regulatory framework of the Employee Retirement Income Security Act. Per Investopedia, “A KSOP is a qualified retirement plan that combines an employee’s stock ownership plan (ESOP) with a 401(k). Under this type of retirement plan, the company will match employee contributions with stock rather than cash. KSOPs can benefit companies by reducing expenses that would arise by separately operating an ESOP and 401(k) retirement plans.” (Investopedia, upd. 2021, 1.) This unique structure was reviewed by a Department of Labor Work Group that emphasized the growing popularity of the KSOP vehicle. ” . . . the Work Group foresees the potential that some sponsors will convert their 401(k) plans to KSOPs. A KSOP is a 401(k) plan where a portion of the plan assets is invested in employer securities through an ESOP. A KSOP conversion would circumvent any employer securities limitations for the plan. However, the ESOP rules would be in place for the employer securities portion of the plan that would provide some additional protections to plan participants.” An ERISA bond is required for both a 401(K) plan and ESOPs so the KSOP hybrid falls squarely within the DoL’s and federal code’s framework.

An ERISA fidelity bond is a commercial crime coverage that specifically protects the assets of a defined benefit, pension or similar plan. The bond offers coverage of those acts committed by a sponsor and plan trustees. It CANNOT be extrapolated upon to offer coverage of third-party service providers. Most plans are professionally managed or advised by outside third parties. An ERISA-compliant fidelity bond for registered investment advisers is a specialty insurance product developed for this particular scenario.

ERISA section 412 and 29 C.F.R. §2550.412-1 and 29 C.F.R. Part 2580 require that every fiduciary (trustee) of an employee benefit plan and every person who handles the assets of a regulated plan be covered by bond. The ERISA bond must be equal to no less than ten percent (10%) of the total asset value in the plan when those assets are “qualified”. “Non-qualified” assets require fidelity bonding of one hundred percent (100%) of the plan assets with no maximum contemplated. The maximum ERISA fidelity bond amount required under the federal code is$500,000 however, the maximum required ERISA bond amount is $1,000,000 if the plan includes employer-issued securities (ESOPs). KSOPs being a hybrid that contains employer-issued securities will have to meet the higher threshold for that portion of the plan asset balance.

Surety One, Inc. is a specialist in surety and fidelity bond underwriting. Licensed nationwide, in Puerto Rico, Canada and U.S. Virgin Islands, we are one of the largest producers of ERISA fidelity bonds. Our class-specific knowledge, decades of experience with ERISA bonds and our broad underwriting authorities allow us to meet ERISA bond requirements immediately. We bond plans with non-qualifying assets, ESOPs, KSOPs, labor union, multiple employer and multi-employer plans. Call (800) 373-2804 or email to discuss a KSOP ERISA bond or any fidelity bond need with an underwriter.