In 1974, a federal law enacted the Employee Retirement Income Security Act to protect participants and beneficiaries from dishonest acts of a fiduciary who handle plan assets. ERISA established minimum standards for plan administrators and investment advisers to protect employee pension and health plans in the private sector.

ERISA section 412 of the Pension Reform Act of 1974 and related generally require that every fiduciary of an employee benefit plan and every person who handles funds or other property of such a plan must be bonded.

ERISA’s bonding requirements are intended to protect employee benefit plans from risk of loss due to fraud or dishonesty on the part of persons who ”handle” plan funds or other property. ERISA refers to persons who handle funds or other property of an employee benefit plan as “plan officials.”

A “plan official” need not be an officer or director of the plan and includes any employee who handles plans funds or property. A plan official must be bonded for at least 10% of the amount of funds he or she handles, subject to a minimum bond amount of $1,000 per plan. In most instances, the maximum bond amount that can be required under ERISA with respect to any one plan official is $500,000 per plan. Effective for plan years beginning on or after January 1, 2008, however, the maximum required bond amount is $1,000,000 for plan officials of plans that hold employer securities.

It must be pointed out that Fidelity coverage under an ERISA Bond is not Trustee Fiduciary Liability. They are separate and distinct coverages and need to bee addressed as such.