An Information of the 401K Fidelity Bond
Actually, in 1974 the ERISA or that Employee Retirement Income Security Act was being enacted to be able to regulate many types of benefit plans for workers. ERISA section 412 and the regulated regulations require that the fiduciary of such employee benefit plan and each person who manages the funds or a property of another must be bonded.
Such bonding requirements of the ERISA are required for the protection of the benefit plans from such risk of loss because of dishonesty or fraud of individuals who are handling those funds or any other property. In the ERISA, those individuals who would handle the funds or property of the employee benefit plan are referred to as plan officials. The Act necessitates that there has to be a fidelity bond which should be placed to cover the fiduciary or those responsible in managing the plan as well as those individuals who would handle the funds or property. These fidelity bonds are meant for protecting the plans from fraud or dishonesty committed by the persons who are linked to them.
It is required that the plan official be bonded for at least ten percent of the amount of funds that one handles. In a lot of cases, the largest bond amount which is necessary under the ERISA is $500,000 for every plan. But, higher limits may also be purchased. But, there is a maximum bond amount of a million dollars for the plan officials of those plans which hold the employer securities.
Know that those employee benefit plans with more than 5 percent of those non-qualifying plan assets that are actually held in those limited partnerships, the real estate, collectibles, securities and mortgages of such closely-held companies and they are being held outside those regulated institutions such as the insurance company, broker-dealer, bank or other organizations which are authorized to function as trustee for the individual accounts for retirement, plan sponsors must do one of which. One would be to ensure that the bond amount is equal to a hundred percent of the value of such non-qualifying assets or one may arrange for the annual full-scope audit, the CPA would physically confirm the presence of the assets at the beginning as well as the end of the plan year.
The 401K has actually partnered with the Colonial Surety Company which is a leader of ERISA or 401K fidelity bonds. They are actually a national insurance company which is licensed in all fifty states and also territories of the US and they have been providing insurance products since 1930. They are actually the biggest direct seller of fidelity bonds in the US.
Source: helpful hints