On the IRS’s Website, “inadequate or no fidelity bond” is listed as the number two defect that compliance officers found during audits. All qualified retirement plans are subject to Title I of the Employee Retirement Income Security Act [ERISA] of 1974. A fidelity bond protects the plan against loss resulting from fraudulent or dishonest acts of those covered by the bond.
While the plan purchases the bond, the coverage is actually extended to plan fiduciaries and anyone else who handles funds or other properties.
Have you checked that the fidelity bond provides an appropriate coverage amount and that it covers fiduciaries and other employees, third parties and provider(s) involved with the plan? The amount of the fidelity bond must equal 10% of the plan’s funds. The minimum bond amount is $1,000 and the maximum bond required is $500,000 (or $1,000,000 if the plan holds employer securities). When checking your fidelity bond coverage, note that it must be assigned per person and not as a single flat dollar amount.
The purchase of a fidelity bond is not an expensive item (plus the plan can pay the expense). Premiums generally run a few hundred dollars for a three-year term. It’s a best practice to confirm that your fidelity bond is at the adequate coverage level.
Adding a fidelity bond can be facilitated through your commercial insurance agent or you can view a listing of IRS-Certified companies.