ERISA Fidelity Bond Impact Analysis—H.R. 2988’s Fiduciary Reforms vs. ERISA Bond Compliance Under ERISA § 412

H.R. 2988, as reported in the House on December 30, 2025, is best analyzed as a fiduciary-governance proposal rather than an ERISA fidelity bond reform. Its operative provisions amend ERISA’s fiduciary duty and participant-direction framework in ERISA § 404, principally by (i) prescribing how fiduciaries must evaluate “pecuniary” versus “non-pecuniary” factors when making investment decisions, (ii) imposing an explicit nondiscrimination requirement in the selection and retention of plan fiduciaries and service providers, (iii) codifying a structured approach to the exercise of shareholder rights (including proxy voting), and (iv) adding notice mechanics for brokerage windows as a condition of participant “control” treatment under ERISA § 404(c). (H.R. 2988, 119th Cong. §§ 1002, 2002, 3002, 4002, 2025). By contrast, the ERISA fidelity bond requirement is housed in ERISA § 412, codified at 29 U.S.C. § 1112, and it requires bonding of persons who “handle” plan funds or other property to protect the plan against losses caused by fraud or dishonesty. (29 U.S.C. § 1112(a), 2024). Because H.R. 2988 does not amend § 412/§ 1112, it does not directly change the scope, mechanics, or sizing of the ERISA bond obligation; any impact on ERISA bond exposures is, at most, indirect and generally collateral to the ERISA fidelity bond’s insuring purpose. (29 U.S.C. § 1112, 2024).

The ERISA fidelity bond requirement is a targeted statutory control designed to mitigate a specific operational risk: theft-like misconduct by persons whose roles create the opportunity to cause a loss of plan assets through dishonest acts. The Department of Labor’s Employee Benefits Security Administration (EBSA) explains that every person who “handles funds or other property” of an employee benefit plan must be bonded unless an exemption applies, and that “handling” is defined functionally, i.e., covering duties or activities that could cause a loss due to fraud or dishonesty, including acting alone or in collusion. (U.S. Department of Labor, EBSA, 2015). EBSA further emphasizes that the bond is written for the plan’s benefit (the plan is typically the named insured), and that the required amount is generally calibrated to the quantum of funds “handled,” requiring coverage of at least 10 percent of the amount handled in the preceding year, subject to statutory minimums and caps. (U.S. Department of Labor, EBSA, 2015). As a matter of statutory design, the ERISA bond is not intended to insure against “bad outcomes” from investment policy, documentation failures, or contested fiduciary judgment; rather, the ERISA fidelity bond is intended to protect the plan against a dishonest taking or comparable fraud/dishonesty event by a person who handles plan assets. (29 U.S.C. § 1112(a), 2024; U.S. Department of Labor, EBSA, 2015). Put differently, the ERISA bond is a crime-protection device, and the ERISA fidelity bond requirement is triggered by “handling,” not by the existence of investment controversy or governance disputes. (29 U.S.C. § 1112, 2024).

That distinction is central because ERISA’s fiduciary duty regime addresses a different category of exposures. ERISA § 404 (29 U.S.C. § 1104) establishes the prudent person standard and loyalty obligations, requiring fiduciaries to act solely in the interests of participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable plan expenses, while also acting with the care, skill, prudence, and diligence of a prudent person familiar with such matters. (29 U.S.C. § 1104(a)(1), 2024). Fiduciary duty enforcement is typically civil in nature, focused on whether fiduciaries complied with process, prudence, loyalty, and disclosure-related obligations. Regulatory attention is commonly associated with fiduciary breach claims rather than employee-dishonesty losses. (29 U.S.C. § 1104, 2024). EBSA has therefore drawn a line between bonding and fiduciary liability coverage: the ERISA fidelity bond insures against losses due to fraud or dishonesty by persons who handle plan assets, whereas fiduciary liability insurance generally addresses losses arising from alleged breaches of fiduciary responsibilities. (U.S. Department of Labor, EBSA, 2008). This is why, when stakeholders ask whether a new bill affects an ERISA bond or ERISA fidelity bond, the first analytic step is always to confirm whether the bill amends ERISA § 412 or modifies the definition of “handling,” the coverage trigger, or the statutory sizing mechanics. (29 U.S.C. § 1112, 2024; U.S. Department of Labor, EBSA, 2015).

H.R. 2988 operates squarely in the § 404 fiduciary domain. Division A adds a “pecuniary factors” construct to § 404(a), stating that fiduciaries are considered to act solely in the interest of participants only if their investment action is based solely on pecuniary factors, with a limited tie-breaker permitting non-pecuniary considerations when alternatives cannot be distinguished on pecuniary grounds, conditioned on documentation. (H.R. 2988, 119th Cong. § 1002, 2025). Division B adds language to § 404(a)(1) requiring fiduciaries, when selecting, monitoring, and retaining fiduciaries, counsel, employees, or service providers, to act in accordance with existing fiduciary subparagraphs and “without regard to race, color, religion, sex, or national origin.” (H.R. 2988, 119th Cong. § 2002, 2025). Division C adds a new § 404(f) on the exercise of shareholder rights, explicitly treating proxy voting as part of the fiduciary duty to manage plan assets that are shares of stock, and it imposes policy and periodic review expectations. (H.R. 2988, 119th Cong. § 3002, 2025). Division D amends § 404(c) by adding brokerage window notice requirements, linking participant acknowledgments and disclosures to the framework under which participants are deemed to exercise control for purposes of limiting fiduciary liability for participant-directed investment decisions. (H.R. 2988, 119th Cong. § 4002, 2025). None of these provisions purports to amend ERISA § 412, none rewrites 29 U.S.C. § 1112, and none expands the statutory requirement to obtain an ERISA bond or alters the ERISA fidelity bond’s fundamental covered peril. (29 U.S.C. § 1112, 2024; H.R. 2988, 119th Cong., 2025).

Because the bill’s amendments are confined to § 404 and § 404(c), the direct legal answer regarding the ERISA bond requirement is straightforward: H.R. 2988 does not alter the statutory bonding trigger (“handling”), the required covered peril (fraud or dishonesty), the bond procurement constraints, or the general 10-percent sizing construct embedded in § 412/§ 1112 and reinforced in DOL guidance. (29 U.S.C. § 1112, 2024; U.S. Department of Labor, EBSA, 2015; H.R. 2988, 119th Cong., 2025). In practical terms, a plan sponsor’s ERISA bond compliance analysis—who must be bonded, how “handling” is evaluated, and how the required amount is calculated, remains governed by existing § 412 statutory text and EBSA interpretive guidance, not by the fiduciary-governance provisions H.R. 2988 would add to § 404. (U.S. Department of Labor, EBSA, 2015; 29 U.S.C. § 1112, 2024). For entities that place or underwrite ERISA fidelity bond coverage, the bill does not require a redesign of bond forms, a re-pricing of the statutory requirement, or a re-definition of the exposures the ERISA fidelity bond is designed to address. (U.S. Department of Labor, EBSA, 2008).

The more nuanced question is whether H.R. 2988 meaningfully changes “bond exposures,” understood as the frequency, severity, or character of losses that an ERISA fidelity bond might be asked to respond to. Here, the bill’s impact remains limited because its primary effect is to raise the procedural and documentation stakes around fiduciary decision-making, not to expand the universe of persons who handle plan assets or to broaden the definition of fraudulent or dishonest acts. (H.R. 2988, 119th Cong. §§ 1002, 3002, 4002, 2025; U.S. Department of Labor, EBSA, 2015). To the extent H.R. 2988 increases disputes, investigations, or enforcement attention, those disputes are most likely to sound in fiduciary breach—questions about whether fiduciaries improperly subordinated financial interests to non-pecuniary objectives, whether they met documentation thresholds, whether they adhered to proxy voting policy obligations, or whether brokerage window notices were administered as required. (H.R. 2988, 119th Cong. §§ 1002, 3002, 4002, 2025). Those are classic fiduciary-liability fact patterns, not classic ERISA bond fact patterns, and EBSA has expressly distinguished the two risk categories in its guidance. (U.S. Department of Labor, EBSA, 2008). An ERISA bond responds to a different species of event: a dishonest act by a person who handles plan assets that directly causes a covered loss to the plan. (29 U.S.C. § 1112(a), 2024).

There is, however, a narrow indirect pathway by which a heightened fiduciary compliance environment can marginally influence fidelity loss dynamics: compliance friction can shift operational workflows, reassign authority, or increase reliance on third parties, and those organizational changes can change where “handling” functions reside. If plan sponsors respond to heightened § 404 process demands by centralizing investment operations, expanding internal approvals, or delegating more functions to recordkeepers, advisers, or other service providers, the roster of persons whose duties create the opportunity for a dishonest loss may change, yet the legal bond standard would still be “handling,” as interpreted under existing law and DOL criteria, rather than any new standard created by H.R. 2988. (U.S. Department of Labor, EBSA, 2015; 29 U.S.C. § 1112, 2024). In other words, the bill could influence plan operations and documentation practices, but it does not transform fiduciary process violations into “fraud or dishonesty” losses that would be ERISA fidelity bond-responsive absent a dishonest taking or comparable covered misconduct. (U.S. Department of Labor, EBSA, 2008; 29 U.S.C. § 1112(a), 2024).

If enacted, H.R. 2988 will have its most material effects in fiduciary governance, documentation, and potential fiduciary-breach litigation and/or enforcement, rather than in ERISA bond compliance or ERISA fidelity bond loss exposures. The ERISA bond requirement remains anchored in ERISA § 412’s crime-protection architecture: it is a plan-protective instrument aimed at fraud and dishonesty by persons who handle plan assets, sized to funds handled, and conceptually distinct from insurance that responds to fiduciary breach. (29 U.S.C. § 1112, 2024; U.S. Department of Labor, EBSA, 2008; U.S. Department of Labor, EBSA, 2015). H.R. 2988 does not re-write that architecture; it overlays additional fiduciary conduct rules on the § 404 side of ERISA, leaving § 412 bonding intact. (H.R. 2988, 119th Cong., 2025).

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

Bibliography

  • H.R. 2988, 119th Cong. (2025) (Protecting Prudent Investment of Retirement Savings Act), reported in House Dec. 30, 2025.
  • United States Code. (2024). 29 U.S.C. § 1104 (ERISA § 404, fiduciary duties).
  • United States Code. (2024). 29 U.S.C. § 1112 (ERISA § 412, bonding).
  • U.S. Department of Labor, Employee Benefits Security Administration. (2008, November 25). Field Assistance Bulletin No. 2008-04: Plan Officials and ERISA Bonding Requirements.
  • U.S. Department of Labor, Employee Benefits Security Administration. (2015). Protect Your Employee Benefit Plan with an ERISA Fidelity Bond.