New ERISA Requirement for Fidelity Bonds

For Plan years beginning on or after January 1, 2008, the insurance limit threshold as set forth by ERISA guidelines for Fidelity Bond coverage for Fiduciaries of Plans that invest in Employer Securities will increase from $500,000 to $1,000,000. The term "Employer Security" means any common or preferred stock issued by the Employer including any subsidiaries or affiliates.

What's Behind the News?

The Employee Retirement Income Security Act (ERISA) requires a Fidelity Bond covering a Fiduciary (those responsible for managing the Plan) and any person who handles funds or other property of such a Plan. The coverage is intended to protect the Plans from dishonesty and fraud committed by individuals who are associated with them. According to the Act, the amount of coverage necessary for each plan is equal to no less than 10% of the amount of Plan funds handled, subject to a $500,000 maximum Bond amount.

The Pension Protection Act of 2006 was signed into law on August 17, 2006. The Act significantly overhauls the funding rules for Defined Benefit Plans and eases some administrative hurdles for 401(k) Plan sponsors who wish to offer investment advice to Plan participants as well as those that want to automatically enroll new employees. Most Plans will also face new or enhanced reporting and disclosure requirements.

Who Will This Impact?

There is no impact to a Company unless it has Employer Securities in any of its Plans. If it does have Employer Securities in any of its Plans, then it must confirm that the Fidelity Bond, whether covered through a Commercial Package Policy or Crime Policy, is sufficient to comply with current ERISA guidelines. The ERISA Fidelity Bond guidelines effective for Plan years beginning January 1, 2008 are as follows:

Plans with no Employer Securities: ERISA Bond limit must maintain a threshold equal to 10% of the total Plan(s) assets, subject to an ERISA requirement "ceiling" of $500,000.

Plans with Employer Securities: ERISA Bond limit must maintain a threshold equal to 10% of the total Plan(s) assets, now subject to an ERISA requirement "ceiling" of $1,000,000.

What Should You Do?

Some questions to consider when reviewing your coverage to make sure it satisfies ERISA requirements as well as protect the Fiduciaries of your Plans:

Does your Company have any Employer Securities in its Plans?

If "yes" to above, is there a Fidelity Bond in place to satisfy Bonding requirements under the ERISA Act of 1974 as amended by the Pension Protection Act of 2006?

If "no" to above, does the limit meet the Fidelity Bond requirements for Plans with no Employer Securities?

Does your Company have a Fiduciary Liability policy in place?

For more information regarding this new ERISA requirement, please contact your WGA Account Executive.