Kevin Kaiser at SuretyBonds.com asked if he could provide a guest post dealing with bonding requirements involving ERISA plans.  "If ERISA's bonding requirements are anything like the rest of the statute we can all use a little more knowledge," I said.  Here is Kevin's guest blog post:  

ERISA Bonds: How They Protect You

Thanks to a 35-year-old law, investors can stave off dishonest practices of those who handle pension plans or profit-sharing programs.  ERISA bonds with fiduciaries, or those who manage the funds. 

In part, violating the ERISA got Bernie Madoff in trouble when a company allegedly invested money in securities controlled by Madoff without beneficiaries’ interest. The ERISA, enacted in 1974, aims to prevent and penalize such actions by bonding every fiduciary and fund manager. When employees at a retirement-plan company commit fraud, steal money or simply misuse funds, they can be held accountable for losses.

As a result, investors may be compensated for the malfeasance. The surety company refunds the retirement plan the amount of the bond, and goes to the plan manager for repayment.

Anybody with a criminal history cannot receive a bond as a fiduciary and cannot be hired to invest retirement-plan funds. At least 10 percent of a fiduciary’s plans need to be bonded at a minimum bonding amount of $1,000. Although higher limits exist, the typical maximum bond amount is $500,000. Every year, the bonding amount must be reevaluated and made current since assets change.

Within the last five years, the government has made some changes to pension funding rules. The Pension Protection Act of 2006 introduced new vesting rules for employee and employer contributions. By 2008, all of the act’s funding rules went into effect.

ERISA terms about bonding are rather intricate, but mainly come down to who, what and how. One party will be responsible for purchasing the bond, and ERISA provisions also define which retirement plan holders need a surety bond. The required bond amount is defined, as is how the bond should be structured.

This is a guest post from Kevin Kaiser of SuretyBonds.com, a surety bond company.

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