Employee Retirement Income Security Act of 1974 (US)


September 2023


The Employee Retirement Income Security Act of 1974 (“ERISA”) is a federal law of the United States that sets minimum standards of conduct for most voluntarily established retirement and health plans in the private industry to provide protection for individuals in those plans. The provisions of ERISA, which are administered by the U.S. Department of Labor, were enacted to address public concern that funds of private pension and other employee benefit plans were being mismanaged and abused.

A critical aspect of ERISA is that of the ERISA bond – a tool that covers administrators to protect against acts of fraud and dishonesty. An ERISA bond is a compulsory requirement (subject to some exemptions) and is essential for the protection of retirement plans.

The bond is an insurance policy that applies to retirement plans that fall under ERISA’s jurisdiction. An ERISA bond protects these plans against losses that may result from fraud or dishonesty by the people in charge.

Every person who “handles funds or other property” must be bonded (unless exempted). This encompasses those whose duties and functions involve receipt, handling, disbursal, custody or control of plans or property, including the plan administrator, responsible principals and employees, the plan sponsor, and in some cases, service providers.

Failure to carry a bond, could result in the Department of Labor imposing financial penalties, sanctions, and criminal penalties.

ERISA requires that the bond meets specific requirements:

  1. The bond must be issued by a qualifying insurance company.
  2. The bond must name the ERISA plan as a named insured. Where a plan fund holds the assets of more than one ERISA plan, all the investing plans must be named or otherwise sufficiently identified in the bond.
  3. Each person handling the fund must be bonded for a minimum amount of 10% of the plan assets “handled” by them in the previous year (and at least $1,000) to a maximum of $500,000 or $1,000,000 for plans holding employer securities. If more than one ERISA plan is covered under the bond, the limit of liability must apply to each plan covered as if it were the only plan named as insured. However, if more than 24% of assets under management are invested into a plan asset fund, each ERISA plan must have a stand-alone bond.
  4. The bond must have no deductible with respect to the statutory minimum coverage required by ERISA amounts, although a deductible may apply to coverage in excess of the minimum amount.

ERISA fidelity bonds are sometimes confused with fiduciary liability insurance. While the ERISA bond specifically insures a plan against losses due to the acts of fraud or dishonesty by persons responsible for managing plan funds or property, fiduciary liability insurance insures fiduciaries, and in some cases the plan itself, against losses essentially caused by mismanagement impacting the plan and participants. Fiduciary liability insurance ought also to be considered but it is not required and does not satisfy the fidelity bonding required pursuant to ERISA.