If your 401(k) plan is funded, it needs a fidelity bond. Here's what that means and what Aboon handles for you.
What is an ERISA fidelity bond?
An ERISA fidelity bond is a type of insurance required by federal law. It protects your plan against losses caused by fraud or dishonesty by anyone who handles plan funds, including theft or embezzlement.
A fidelity bond is not the same as fiduciary liability insurance. Fiduciary liability insurance covers plan fiduciaries against claims of a breach of duty. A fidelity bond specifically covers the plan against losses from dishonest acts. Your plan needs a fidelity bond regardless of whether you also carry fiduciary liability insurance.
Who does it protect?
The fidelity bond protects your plan and its participants, not the individuals who handle plan funds. If someone with access to plan assets, such as a plan trustee or administrator, commits fraud or theft, the bond allows the plan to recover the loss.
How much coverage is required?
Coverage must equal at least 10% of the plan's assets as of the start of the plan year, with a $1,000 minimum and a $500,000 cap for most plans.
How Aboon handles your plan's bond
As part of Aboon’s services, we purchase and manage fidelity bond coverage for your plan. You don't need to do anything to set this up.
New plans: Aboon purchases a bond covering the plan within a quarter after it is first funded.
Takeover plans (existing plans transitioning to Aboon): For plans that already existed before joining Aboon, we purchase your plan's first bond with us in the fourth quarter of your first year of service, timed to your plan's first full plan year with Aboon. This gives time for any bond you already have in place to run its course, since existing bonds generally can't be canceled early.
If you have a gap in coverage: If your current bond is expiring before Q4, or you'd like Aboon to purchase your plan's bond sooner, let us know and we'll work with you on the timing.
Ongoing coverage: Aboon purchases bonds in three-year terms, which qualifies for a lower premium than purchasing annually. Each bond includes an auto-increase rider, so your coverage automatically keeps pace with the required 10% of assets as your plan grows between purchases.
Provider: Aboon works with an approved bonding provider listed on the U.S. Department of the Treasury's Listing of Approved Sureties (Circular 570).
What it costs
Aboon pays the bond premium upfront and passes the cost through to you as part of our regular quarterly invoicing.
Want a copy of your bond?
You can request a copy of your plan's fidelity bond at any time. Reach out to your Aboon contact or email [email protected] and we'll provide it from our bonding provider.
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This content is being provided for informational purposes only and should not be taken as tax, legal, or individualized investment advice. Aboon does not provide tax, legal, or investment advice. This information is believed to be reliable, but its accuracy and completeness are not guaranteed, and the views expressed here may change. You should consult with an appropriate professional regarding your situation.