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Understanding Fidelity Bonds

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What is a fidelity bond?

A fidelity bond is a type of insurance required by the Employee Retirement Income Security Act (ERISA) to protect 401(k) plans from losses due to fraud or dishonesty. It covers actions such as theft, embezzlement, and forgery by individuals who handle plan assets.

Who is covered by the fidelity bond?

The fidelity bond must cover anyone who handles plan funds or property. This includes:

  • Plan fiduciaries, recordkeepers, administrators and trustees with authority over plan assets.
  • Employees responsible for processing transactions or accessing funds.
  • Third-party service providers, if they have discretionary control over assets.

How much bond coverage is required for a 401(k) plan?

ERISA requires a fidelity bond to cover at least 10% of plan assets, with a minimum of $1,000 and a maximum of:

  • $500,000 per plan for most 401(k) plans.
  • $1 million if the plan holds employer securities.

Who is the plan’s fiduciary for fidelity bond purposes?

For Betterment 401(k) plans, any Administrator-level manager assigned in the Plan Sponsor Dashboard is considered the Plan Fiduciary for fidelity bond purposes.

How do I know if I have a fidelity bond?

To verify if your 401(k) plan has a fidelity bond:

  • Check with your insurance broker – Many companies obtain fidelity bonds through the same provider as their business insurance.

Betterment does not track nor provide fidelity bond coverage, as this must be acquired outside of Betterment.

How do I obtain a fidelity bond for my 401(k) plan?

Most companies acquire fidelity bonds through their insurance broker. If you do not have one, consider searching for ERISA fidelity bond providers that specialize in 401(k) compliance.

Below are some providers our clients have used:

This is not a recommendation or endorsement. Plan Sponsors should independently assess the bond provider that works best for their plan.

What are the roles of Administrators and Staff in relation to the fidelity bond?

  • Administrators (Plan Sponsor Dashboard role: Administrator)
    • Act as Plan Fiduciary.
    • Can move money, approve distributions, and make bank account changes.
    • Must be covered by a fidelity bond.
  • Staff (Plan Sponsor Dashboard role: Staff)
    • Have fiduciary responsibilities (e.g., handling paperwork for loans or distributions).
    • Cannot authorize transactions or move money.

Ensuring proper fidelity bond coverage is essential for 401(k) plan compliance and protection against fraud-related losses.