What is the Importance of ERISA bond?

The ERISA or Employee Retirement Income Security Act is an act that sets rules and standards of conduct for private sector employee benefit plans and those that invest and manage their assets. ERISA simply refers to persons who are involved in handling of funds and other property of an employee benefit plan as ‘plan officials’. It is one of the vital requirements of ERISA that the people who handle plan funds and other property must be covered by a fidelity bond to protect the plan from losses due to fraud or dishonesty. ERISA bonds are designed to protect employee benefit plans from risk of loss due to fraud or deceit on the part of persons who handle plan funds or other property.

Every fiduciary of an employee benefit plan and every person who handles plan funds must be bonded by an ERISA bond, unless an exemption applies. It is illegal for any person to receive, handle, give out, or otherwise exercise custody or control of plan funds or property without being properly bonded. Each person must be bonded in an amount equal to at least 10% of the amount of funds he or she handled in the preceding year.

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