ERISA Bond vs. Fiduciary Liability Insurance: What Plan Sponsors Need to Know
Plan sponsors play a critical role in managing retirement plans, and with this responsibility comes risk. Two essential tools to protect both the plan and the fiduciaries are ERIS bonds and fiduciary liability insurance. Here’s what they are, why they’re needed, and why plan sponsors should consider them.
What Is an ERISA Bond?
An ERISA bond is a legal requirement under the Employee Retirement Income Security Act (ERISA). It safeguards the retirement plan from losses caused by theft, fraud, or dishonesty by individuals handling plan assets.
• Why is it needed? To comply with federal law and protect plan participants’ assets.
• Who must have it? Any person handling plan funds, including fiduciaries.
• Coverage amount: At least 10% of plan assets, with a $500,000 cap (or $1,000,00 for plans with employer securities).
What is Fiduciary Liability Insurance?
Fiduciary liability insurance is optional but vital. It protects plan sponsors and fiduciaries from personal liability if they are accused of breaching their fiduciary duties, such as poor investment decisions or failure to monitor service providers.
• Why is it needed? Fiduciaries can be held personally liable for plan losses due to mismanagement.
• Who benefits? Plan sponsors, fiduciaries, and organizations overseeing the plan.
• Coverage amount: Tailored based on the plan’s size and complexity.
Why Would a Plan Sponsor Want Both?
While an ERISA bond protects the plan against fraud or theft, fiduciary liability insurance protects fiduciaries personally from lawsuits related to breaches of duty. Without both, plan sponsors risk non-compliance, financial loss, and personal exposure to legal claims.
In short, the ERISA bond ensures compliance and asset protection, while fiduciary liability insurance offers financial clarity and financial security for those managing the plan.
By securing both, plan sponsors demonstrate a commitment to protecting participants and fulfilling their fiduciary responsibilities effectively.
Scott Higgins | AIF ®, CFP®, CPFA®, NSSA®
Financial Advisor
Since 2012 at Rose Street, Scott has been responsible for helping the firm’s individual wealth management clients with income strategies for retirement and consulting with employers with their employee retirement plans. In free time, he enjoys golf, biking, skiing, cooking, and traveling. Fun Fact, Scott has a hobby of filling growlers with coins!
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