As an employee Benefit Plan (401k Plan) sponsor, under the Employee Retirement Income Security Act of 1974 (ERISA) you are required to maintain a “Fidelity Bond” for your plan. The Fidelity bond protects your Plan from a loss that may result from actions taken by those within the company that handles plan funds. This would normally include:
- Payroll processors.
- Plan Trustee(s).
- Plan Administrators.
- Any other employees that are involved in working with the plan on a regular basis.
The Fidelity Bond must provide coverage equal to 10% of the beginning of the year assets/investments up to $500,000 ($1,000,000 if the Plan holds employer securities) with a minimum of $1,000. The bond must cover the Plan for the entire year.
If there is no Fidelity Bond in place, the Plan would be considered out of compliance with ERISA and the Plan’s named fiduciary/trustee could be held personally liable for any losses that occur.
Fidelity bonds are easy to put in place, inexpensive and can be paid from Plan assets if necessary. Coverage should be verified annually by the Plan sponsor.
As the plan sponsor, when it’s time to audit your plan, it’s vital that you hire an experienced auditor to ensure your plan is in compliance. At Summit CPA we specialize in retirement plan audits. We have the ability to offer assistance entirely off-site with little or no distraction to your daily office routine. We also offer flat-fee pricing so there are no surprises on your bill when the job is complete. For assistance contact our office at (866) 497-9761 to schedule an appointment.