401k Bond

ERISA bonds (also called 401K or Fiduciary bonds) began in response to the abuse of retirement plans and other employee benefit programs. A law was passed in 1974 that said that any retirement plans with 100 participants or less must have an ERISA bond for at least 10% of the qualified assets in the plan (assets that are held by a financial institution). The bond amount (penalty) is determined by this. The minimum bond amount is $1,000, and the maximum amount is $500,000. If the plan has any non-qualified assets (collectibles, artwork, limited partnership, etc.) the bond must be for the total amount of the assets that are defined as non-qualified.

ERISA bonds serve to field claims that involve dishonest behavior in relation to the asset fund. It protects the plan participants in that, in the event of a claim, the ERISA bond pays directly to the participants of the plan.

Some small benefit programs are exempt from the ERISA bond requirement. Some examples of these programs would be churches, governmental plans, plans maintained for a worker's compensation program, etc.