The Employee Retirement Income Security Act of 1974 requires that every person who handles plan assets be bonded to protect against loss due to fraud or dishonesty. Under ERISA Section 412 plan officials must be covered by a fidelity bond not less than ten percent of the amount of plan funds handled with a minimum amount of one thousand dollars and a maximum of five hundred thousand dollars. For plans that hold employer securities the maximum available limit rises to one million dollars. The fidelity bond required under ERISA must provide first-dollar coverage with no deductible and must be issued by a surety that appears on the Department of the Treasury-approved list of surety companies (U.S. Department of Labor, n.d.). Courts and regulators treat this bonding requirement as a core fiduciary duty rather than an administrative formality. Accordingly, bond sufficiency and renewal must be integrated into a plan’s annual compliance calendar to ensure uninterrupted protection against employee dishonesty and misappropriation (BDO, 2025).

Critical Dates for ERISA Plans and Bond Sufficiency Review

The most important date for ERISA plan compliance is the final day of the plan year which for the majority of retirement plans in the United States is December thirty-one. This date represents the valuation point for determining year-end asset value participant counts, annual contributions and trust balances. Because ERISA requires that fidelity bond coverage equal not less than ten percent of the amount of plan assets handled during the preceding year, the valuation as of December thirty-first functions as the measurement base upon which the following year’s bond coverage must be calculated. A sponsor whose plan experienced asset growth during the year must review coverage at this moment to determine whether the bond remains adequate or whether an increase or new bond is required (Standard Insurance Company, n.d.).

Inadequate year-end review is a persistent risk factor for small and mid-sized plans. Plans with rapidly increasing contributions or market-driven asset appreciation may unknowingly become under-bonded at year-end, although they appeared compliant at the beginning of the year. Research by accounting and plan-audit professionals has shown that fidelity bond insufficiency remains one of the most common deficiencies identified during ERISA plan audits (Price & Ramey, n.d.). For this reason, the final month of the plan year should be dedicated to record completion, census verification, and asset reconciliation in preparation for the annual bond sufficiency calculation (BDO, 2025).

The second key date for ERISA compliance is the first day of the new plan year, typically January 1st. As soon as the prior year’s asset valuation is available, fiduciaries should confirm that the ERISA fidelity bond remains compliant in amount of coverage, type and named insured. The plan must be explicitly identified as the insured party and all plan officials with authority to handle assets must be covered. Some surety companies are in the habit of naming the plan sponsor as the insured, with the expectation that all of the sponsor’s plans will be covered. I don’t recommend that for some very good reasons which I will address in a future paper. Sponsors should maintain documentary proof of coverage including but not necessarily limited to; a copy of the bond declarations, confirmation that the issuing surety appears on the United States Treasury circular of approved sureties, and evidence that the policy carries no retention. This turn-of-year review ensures that no period exists during which fiduciaries handle plan assets without adequate bonding which could expose participants to unprotected loss and create personal liability for plan officials (U.S. Department of Labor, n.d.).

A third milestone arises during the annual government reporting cycle, particularly at the time Form 5500 is filed. For calendar-year plans, the Form 5500 deadline falls on July 31st. Part of this report requires disclosure of the amount of fidelity bond coverage in force for the plan during the year. A plan that cannot demonstrate proper bonding may be flagged for regulatory review. The Department of Labor has demonstrated willingness to pursue civil enforcement actions for bond violations, especially when combined with late reports or failures in plan administration (National Association of Plan Advisors, 2021). As if fines were not enough to drive up your blood pressure, criminal penalties are also contemplated under Federal Code. For these reasons, the bond should be fully verified in advance of the Form 5500 reporting cycle and plan sponsors should retain evidence to support coverage for DOL or IRS inquiry (Ascensus, n.d.).

Bond Implications of Mid-Year Changes

Although December 31st and January 1st represent the primary compliance checkpoints, ERISA fiduciaries must also evaluate certain operational changes that occur throughout the year. Mid-year ERISA bond review is necessary when large contributions change asset value, when substantial distributions reduce the fund balance, when the plan merges or spins off or when trustees or administrators change. Any new individual with authority to handle plan assets must be covered in order for the plan to remain compliant. Additionally, plans that invest in non-qualifying assets such as real estate, private equity or non-publicly traded securities generally present increased risk exposure. In those circumstances, a higher ERSIA fidelity bond amount is required by law. We also recommend that additional controls be instituted. Some plans with large holdings of non-qualifying assets may trigger the requirement for an independent accountant’s audit under ERISA if proper bonding cannot be demonstrated (American Society of Pension Professionals and Actuaries, 2020).

Fiduciary Risk Rationale for Timed Bond Review

ERISA bond sufficiency cannot be treated as a clerical exercise. Fidelity bond failure exposes participants to financial loss, plan fiduciaries to litigation and perhaps criminal exposure, regulatory enforcement and potential disqualification. Where dishonest acts occur in an under-bonded or un-bonded plan, fiduciaries can be held individually accountable for losses. The Department of Labor emphasizes that a bond requirement exists to protect plan participants, ot the fiduciaries. Form 5500 reporting clearly discloses bond status therefore noncompliance is easily detected. DOL enforcement has repeatedly demonstrated that improper bonding will support civil penalties, corrective action orders and in severe cases revocation of fiduciary authority and prosecution (U.S. Department of Labor, n.d.).

A disciplined annual compliance calendar is essential. Year-end review, beginning-of-year confirmation, mid-year event-based analysis and pre-Form-5500 verification constitute a robust governance structure capable of addressing all of this. Plans that institutionalize these review dates demonstrate accountability and evidence of prudent fiduciary operation. Plans that do NOT are simply asking to attract regulatory scrutiny and participant claims. The ERISA fidelity bond requirement is structurally simple but operationally complex in application. The core compliance dates are year-end asset valuation, usually December 31st, beginning of new plan year, typically January 1st, event-driven mid-year reviews and the Form 5500 reporting season. At each point, fiduciaries must verify appropriate coverage in amount, form and named insured status. Failure to conduct a timely review exposes plans and fiduciaries to enormous and very unnecessary financial, legal and compliance risk. Just don’t do it. It is too easy to get this right. Consistent calendaring of these obligations remains one of the most effective methods of ensuring regulatory compliance and maintaining fiduciary integrity within an ERISA plan environment. A consultation with your ERISA bond expert is a good starting point.

~ C. Constantin Poindexter, MA, JD, CPCU, AFSB, ASLI, ARe

References

  • American Society of Pension Professionals and Actuaries. (2020). Fidelity bond requirements for qualified plans.
  • Ascensus. (n.d.). 401(k) plan bonding requirement.
  • BDO. (2025). ERISA fidelity bonds dispelling common misunderstandings.
  • National Association of Plan Advisors. (2021). Case of the week ERISA fidelity bond failure now what.
  • Price & Ramey. (n.d.). ERISA fidelity bonds.
  • Standard Insurance Company. (n.d.). Fidelity bonds insurance coverage required by ERISA.
  • U.S. Department of Labor. (n.d.). Protect your employee benefit plan with an ERISA fidelity bond.