Things to Know Regarding the 401K Fidelity Bond
It was in the year 1974 that the ERISA or the Employee Retirement Income Security Act was actually enacted to regulate various types of benefit plans for the employees. ERISA section 412 and the regulated regulations require that the fiduciary of such employee benefit plan and each person who manages the funds or a property of another must be bonded.
Such bonding requirements of the ERISA are required for the protection of the benefit plans from such risk of loss because of dishonesty or fraud of individuals who are handling those funds or any other property. In the ERISA, those individuals who would handle the funds or property of the employee benefit plan are referred to as plan officials. The Act necessitates that there has to be a fidelity bond which should be placed to cover the fiduciary or those responsible in managing the plan as well as those individuals who would handle the funds or property. Those fidelity bonds are there to provide protection to the plans from fraud or dishonesty which are committed by the people who are actually associated with them.
It is required that every plan official should be bonded for 10 percent of the amount of such funds that one would handle. In a lot of cases, the largest bond amount which can be demanded under ERISA with respect to a plan official is $500,000 for each plan. However, there are also higher limits which one can buy. But for the plan officials who are holding such employer securities, then the largest bond amount offered is $1,000,000.
Know that those employee benefit plans with more than 5 percent of those non-qualifying plan assets that are actually held in those limited partnerships, the real estate, collectibles, securities and mortgages of such closely-held companies and they are being held outside those regulated institutions such as the insurance company, broker-dealer, bank or other organizations which are authorized to function as trustee for the individual accounts for retirement, plan sponsors must do one of which. One would be to ensure that the bond amount is equal to a hundred percent of the value of such non-qualifying assets or one may arrange for the annual full-scope audit, the CPA would physically confirm the presence of the assets at the beginning as well as the end of the plan year.
The 401K has actually partnered with the Colonial Surety Company which is a leader of ERISA or 401K fidelity bonds. They are actually a national insurance company which is licensed in all fifty states and also territories of the US and they have been providing insurance products since 1930. Know that they are the biggest direct seller of the fidelity bonds in the United States.
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