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What are ERISA bonds and how do they protect employee benefits?

| Jul 13, 2018 | Commercial Disputes |

When an employer hires employees, an employee will take the time to fully understand the benefits that come with their new position. This often means looking at specific benefits that provide funds for their future and their retirement. Take for example an ERISA qualified pension plan. This plan is devised to benefit employees; however, these funds could be compromised if theft or other crimes occur in the workplace.

What are ERISA bonds and how do they protect employee benefits? In simple terms, an ERISA bond is another form of insurance used to protect employee benefit plans. These bonds are taken out against those that control the funds of these plans, in other words, the fiduciaries. With regards to an ERISA qualified pension plan, fiduciaries would be the investment manager, investment advisors and trustees.

Essentially, an ERISA bond is a mechanism that helps ensure that the participants of the plan are protected when certain events occur. This includes fiduciary fraud, dishonesty or criminal behavior in the workplace. But ERISA is not like a standard insurance that will cover full loses. An ERISA bond will only cover up to the pre-calculated payout amount.

While ERISA bonds are technically required, there are no penalties for fiduciaries if they decide not to purchase ERISA bonds for their plan. This means that if there is an act of fraud, dishonesty, theft or other criminal act, the fiduciaries will have to pay out-of-pocket.

When an act occurs that impacts employee benefits, it is important to understand what this means, how these benefits are protected and what steps are necessary. In some cases, this means filing a claim to obtain these funds but also take action against those that compromised them. In cases where no bond exists, employers and employees should take the time to understand what steps are necessary to make themselves whole again.