Keep in mind this bond does not protect the plan sponsor from fiduciary liability. It offers protection in the event of fraud.

Who must be covered by the bond?
As a general rule, every plan fiduciary and every person who “handles funds or other property” of an ERISA-covered employee benefit plan (see below) must be bonded. It should be noted that administrative committee or investment committee members are often considered to be plan fiduciaries. A person is considered to “handle” plan funds if the person has physical contact with cash, checks, or other similar property, is able to secure physical possession of plan funds, or has the potential ability to direct (acting alone or with others) the transfer of plan funds to himself or herself or to third parties.What employee benefit plans are covered?
The bonding requirement applies to most employee benefit plans under ERISA, including:

tax-qualified retirement plans;

group medical, dental, and prescription drug plans; and

flexible spending arrangements (FSAs).

You should think about the ERISA bonding requirements any time that you or one of your employees or agents is handling employee money or plan assets.

Tax–Qualified Retirement Plans
Tax-qualified retirement plans will always require bonding because they involve plan assets that are set aside in a trust. Thus, any analysis will need to focus on whether the fiduciary in question “handles” the plan assets, not on whether plan assets exist.

The fidelity bond is extremely important and required by the regulations. It does not provide fiduciary protection to the plan sponsor.

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