ARTICLE
ERISA Coverage:
Understanding Your Firm's Protection
How sure are you that your firm has adequate insurance coverage to protect your firm’s assets and minimize risks?
Enter: Employee Retirement Income Security Act of 1974 (ERISA) coverage.
To bond or insure your Plan Assets?
Who is covered?
Anyone handling plan funds or property is required to be bonded unless exempted under ERISA. This includes plan administrators, trustees, employees and service providers with access to plan funds or decision-making authority that poses a risk of loss due to fraud or dishonesty.
Each person must be bonded for at least 10% of the funds handled in the preceding year, with minimum bond amounts set by ERISA, explained further below. Bonds should cover losses for each plan named on the bond. Plans can pay for the bond using plan assets, as ERISA’s bonding requirements aim to protect the plan itself.
Understanding the intricacies of ERISA fidelity bonding is paramount for companies looking to ensure comprehensive coverage in the event of fraud or dishonesty. The following is guidance on understanding and obtaining the right ERISA coverage.
What To Know About ERISA Coverage
1. Learn the places where your ERISA coverage can be found.
Misconceptions surrounding ERISA bonding can lead to unnecessary or duplicate coverage. Many Crime policies already include ERISA coverage, especially if the insurer is U.S. Treasury listed.
ERISA coverage may also be integrated into your business owner’s package (BOP) policy, particularly for smaller firms. Since the ERISA coverage is provided with a barrage of other coverages on a BOP, unless your broker is actively checking in with you on your plan asset size, we often find new clients are underinsured.
It is critical that ERISA coverage matches the evolving asset size of your firm. Work with your broker to determine any existing ERISA limits.
Avoid duplication of coverage so that you do not end up paying double the cost. Many auditors may mistakenly seek an ERISA bond, not realizing this is not the only place the coverage is found. For example, the below table shows the coverage on a Crime policy.
2. Determine the right coverage amount.
Failure to bond ERISA to the required amount could result in negligence claims of the Fiduciary, underscoring the importance of aligning coverage with asset size. The DOL states that individuals handling plan funds must be bonded for at least 10% of the funds they managed in the previous year. The bond amount cannot fall below $1,000, nor can the DOL mandate bonding for more than $500,000 per plan official, or $1 million for plans holding employer securities.
It is possible for your limit to be more than what is stated above if a person handles funds for more than one plan. Typically, if our clients purchase Crime, the ERISA Fidelity coverage will be at a much higher limit, i.e., $2 million, $5 million, $10 million or more.
3. Tailor your Crime coverage to fit your needs.
ERISA Fidelity is just one coverage provided by a Crime policy. More generally, it provides for employee theft of company assets, but it also can provide for employee theft of third party assets. Evaluate your Crime limit in relation to the amount of money you have in any one bank account.
Many companies are often misled by the protection afforded by the FDIC, not realizing that banks are held liable to a negligence standard. Coverage for third party assets is not automatically included; it must be underwritten based off employee exposure to third party assets and can often be contractually required.
There are often sublimits provided by a Crime policy, namely for social engineering and invoice manipulation. With the ability to trick employees to misdirect funds, more and more this will become a heightened risk. Partner with your broker to make sure you are adequately protected, either by working to increase the sublimit or by purchasing excess coverage outside of the Crime policy.
Crime can also be provided as part of an Executive Risk package policy providing the Fiduciary Liability mentioned above, but also liability for Directors & Officers and Employment Practices (harassment).
Protect Your Company
AUTHOR
KRISTEN WALKER, CRIS, LEED
Kristen is a client executive and broker with Greyling, a division of EPIC. She is experienced in the unique coverage needs of both contractors and design firms. She works with mid-sized to large clients, many with global exposure and complex insurance programs.
Kristen founded the Greyling | EPIC sponsored Women in A/E/C Networking Events that provides a forum for relevant industry topics to be discussed by leading and up-and-coming women in a relaxed environment.
Kristen joined Greyling in 2012. Prior to that, she was a Senior Underwriter at Zurich focusing on both project and practice professional liability policies for owners, contractors, and designers. Kristen holds Construction Risk and Insurance Specialist (CRIS) and Leadership in Energy and Environmental (LEED) Green Associate designations.