The Employee Retirement Income Security Act (ERISA) lays down rules and standards that private-sector employers must follow when providing their employees with benefits. One aspect of this act is ERISA bonds, which are commonly misunderstood by employers and employees alike. Learn more about what they are, how they can benefit you, and more below. 

What Are ERISA bonds?

Also known as an ERISA fidelity bond, ERISA bonds are a type of insurance that protects benefits plans from fraud, such as theft, embezzlement, willful misapplication, and other similar acts. These bonds help keep those who offer these plans accountable and ensure that the administration of benefits, especially retirement, remains ethical. 

ERISA bonds are a legally binding financial guarantee that the employer, or other party administering the benefits, will abide by all laws and actually pay out to the plan’s beneficiaries when the time comes. The ERISA act was enacted in 1974 due to an alarming number of people who worked for employers for years, yet never saw the benefits they were promised. 

Where Are ERISA Bonds Administered?

Many people wonder if any insurance company or bond company can provide ERISA bonds, but ERISA bonds must be obtained with a surety from the U.S. Department of Treasury’s Listing of Approved Sureties. ERISA bonds obtained from a company or individual that is not on the list are unlikely to provide any financial guarantees. 

Are ERISA bonds the same as fiduciary liability insurance?

No, ERISA bonds and fiduciary liability insurance differ in a few key ways. ERISA bonds strictly protect against losses from theft, fraud, or other forms of dishonesty, by those who manage the benefits plans. In other words, ERISA protects employees or benefit recipients. 

Fiduciary liability insurance, on the other hand, protects the benefits provider from being sued by those who are provided benefits from the company in question. Handling benefits is a complex endeavor, and many companies decide to have fiduciary liability insurance to protect themselves from costly fees or legal battles if there are errors in the administration of their benefits plans. Fiduciary liability insurance protects companies or those who provide benefits. 

ERISA bonds are an important safeguard for employees and benefit recipients to ensure that they will receive the benefits and pay outs they have been promised by various entities. Without this safeguard, there is no guarantee that benefits will be covered in the case of a bad actor, theft, or fraud.