A fidelity bond protects 401(k) plan assets from fraud, theft, or dishonesty by individuals handling plan funds. ERISA § 412 and related regulations require every fiduciary of an employee benefit plan and every person who handles funds or other property of a 401(k) plan be properly bonded. Under ERISA, 401(k) plans are required to maintain a bond equal to at least 10% of total plan assets, with:
- A minimum bond of $1,000.
- A maximum bond of $500,000 per plan (or $1 million if the plan holds employer securities).
A fidelity bond is not provided by Betterment, and Betterment does not have a record of the bond. Employers must purchase a bond from an insurance provider or surety company.
Employers should check with their insurance broker or financial institution to confirm they have an active fidelity bond that meets ERISA requirements. The Department of Labor outlines requirements here. The face value of the fidelity bond must be reported in the compliance questionnaire annually.
Maintaining a compliant 401(k) plan helps protect plan assets and avoid costly penalties.
FAQ
Is a surety bond the same as a fidelity bond?
A surety bond and a fidelity bond protect against different risks. A surety bond protects a third party—such as a client or government agency—by guaranteeing that your business will fulfill its obligations. If the business fails to meet those obligations, the bond compensates that third party. A fidelity bond, on the other hand, protects the business itself by covering losses caused by employee dishonesty, such as theft or fraud. Because they serve different purposes and protect different parties, a surety bond cannot replace a fidelity bond and a surety bond does not cover the regulatory obligation. In simple terms, a surety bond protects others from your business not performing, while a fidelity bond protects your business from its own employees.