Insufficient Fidelity Bond: Risks and Compliance for Retirement Plans

ERISA requires all company-sponsored retirement plans to be protected by a fidelity bond—a type of insurance that shields participants from losses due to fraud. A sufficient fidelity bond should cover at least 10% of a retirement plan’s assets, up to $500,000. However, companies with higher exposure or unique needs can opt for more significant bonds. 

What are the risks of an insufficient fidelity bond? 

Maintaining a sufficient fidelity bond can put companies at significant financial risk. In the event of fraud or other losses, companies without adequate coverage must pay any uncovered amount out of pocket. Although the Department of Labor (DOL) does not impose direct fines for insufficient bonding, companies that report an inadequate bond on their annual Form 5500 may attract unwanted attention. Repeated reports can flag the company for a DOL audit—a costly and time-consuming process typically incurring fees between $8,000 and $12,000. 

Fortunately, updating a fidelity bond is straightforward and relatively affordable. Most companies work with their plan’s recordkeeper or administrator to secure a bond from the Department of the Treasury, ensuring compliance and peace of mind. Companies can also work through the same insurance provider they use for other coverages. 

How Can OpenPlan Assist? 

At OpenPlan, we understand that fidelity bonds are just one item on a retirement plan sponsor’s compliance checklist. While an insufficient fidelity bond might not carry a direct penalty, other aspects of non-compliance do trigger costly fines and liabilities. Our approach is to help companies with comprehensive oversight of their fiduciary and compliance responsibilities so ‘they’re protected on all fronts. 

Additional support from OpenPlan 

OpenPlan’s services go beyond compliance, offering a suite of support options for retirement plan sponsors: 

• Investment Fiduciary Services: We take ownership of selecting and monitoring fund options and maintaining model portfolios, seeking to ensure participants’ top-tier investment experience and mitigating plan sponsor liability. 
• Vendor Management and Benchmarking: We manage relationships with recordkeepers and administrators, performing regular benchmarking to ensure all vendors (including OpenPlan) deliver top value. 
• Proactive Plan Design Consulting: Our team works with you to ensure that your retirement plan achieves the desired impact for employees while supporting business objectives. 
• Financial Wellness Benefits: In addition to broad-based education, we provide employees unlimited, 1:1 access to our licensed Advisor Support team, helping them confidently navigate personal financial decisions. 

Maintaining a sufficient fidelity bond is essential to protect retirement plan sponsors and participants from financial risk due to fraud. With OpenPlan’s support, companies can ensure compliance, protect themselves from audits, and enhance the overall value of their retirement benefits for employees. 

Are you interested in strengthening compliance with your retirement plan? Contact OpenPlan today to discuss our tailored solutions for comprehensive plan oversight. 

The information contained in this document is provided for informational purposes only and should not be construed as individualized advice. For individualized advice, please consult with your adviser.