What is a fidelity bond?

A fidelity bond is a type of insurance contract required by the Department of Labor for 401(k) plans, profit sharing plans, defined benefit plans and some 403(b) plans. The purpose of a fidelity bond is to protect the assets in employee benefit plans from risk of loss due to fraud or dishonesty by the individuals who handle the plan assets.

What types of retirement plans require a fidelity bond?

All retirement plans require a fidelity bond except for single participant plans, plans sponsored by most churches or church-controlled entities, plans sponsored by government entities, and certain 403(b) plans that qualify for an ERISA exemption.

How is the amount of the fidelity bond determined?

The minimum fidelity bond required is the greater of $1,000 or 10% of the value of plan assets on the first day of the plan year. The maximum required is generally $500,000. If the plan invests in non-qualifying assets, such as real estate, non-publicly traded securities, or the stock of the company sponsoring the plan, the maximum fidelity bond amount increases to $1 million.

If more than five percent of the plan assets are invested in non-qualifying assets, the minimum fidelity bond amount becomes the greater of 10% of the value of the qualified plan assets, 100% of the value of the non-qualifying assets, or $1,000.

How does one purchase a fidelity bond?

Most insurance agents can assist with securing a fidelity bond; however, only certain insurance companies are permitted to issue them.