ERISA requires surety bonds for retirement fund managers

ERISA requires surety bonds for retirement fund managers, find out why

When retirement-fund fraud happens, investors stand to lose their money, as many learned in the Bernie Madoff scandal. But if a money manager who works directly for the retirement plan mismanages the funds, investors may receive compensation from the manager’s surety bond. The bond provides financial protection to the retirement plan, as the surety company will pay the retirement plan the amount of the bond, and then seek reimbursement from the manager.

The federal Employee Retirement Income Security Act, better known as ERISA, has strict bonding requirements for each employee at a retirement-plan company who handles workers’ accounts. If they steal from the plan or mismanage funds, plan managers can be held personally liable for losses.

Over the years, the bonding requirements have stiffened as the government seeks to make sure workers’ retirement funds are protected from misuse. After the Pension Protection Act of 2006 was passed, the U.S. Department of Labor reviewed the bonding requirements and in 2008 issued new guidance on the bonding rules.

Fiduciaries involved in money management now must be bonded for at least 10% of the amount of plan funds they handled in the past year. The bonding amount must be at least $1,000, and in some cases will reach $500,000 or more. The bonding amount must be reviewed and updated annually as plan assets change. If a fiduciary has a prior criminal history, they will not be able to obtain a bond and cannot be hired to oversee retirement-plan funds.

The ERISA provisions covering bonding are complex, detailing who at a retirement plan must obtain surety bonds, how those bonds can be structured, which party is responsible for purchasing the bond, and what bond amount is required. To obtain new ERISA bonds or review your current bond with an expert to make sure it complies with current federal law, contact at 1 (800) 973-4954.

Photo via Flickr user Katrina.Tuliao

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About the Author

Carol Tice
Business journalist Carol Tice has written for Entrepreneur Magazine, the Seattle Times, Dun & Bradstreet and many others. She is a frequent contributor to

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