Importance of protecting employee benefit plan with ERISA


ERISA which is acronym of Employee Retirement Income Security Act is designed to protect the rights and assets of employees who have trusted in the employer-managed retirement plans. It was a great concern in past that the privately managed funds are exposed to greater fraud risks and to cover this thing, an Act was introduced under which every employee who manages the investment and retirement income assets was covered. After the enactment of this act, there has been a great reduction in the mismanagement and abuse of the retirement funds. It is a type of insurance bond where no concept of deductibles exists. There are certain acts which can cause loss of the investment assets. These include but are not limited to:

  • Fraud and dishonesty
  • Theft
  • Embezzlement
  • Larceny
  • Misappropriation
  • Forgery
  • Wrongful conversion
  • Wrongful abstraction

There is a difference between ERISA and the fidelity bond in terms of legal provisions. ERISA fidelity bond is a clear safeguard against fraud and misrepresentation caused by the employees or the people who are managing the funds. However, Fidelity bonds are different in nature where the whole investment is protected against the losses which are usually caused by breach of agreement in fiduciary duties. It is important to understand this difference and if you really want to get protected against the embezzlement caused by the people who are managing the funds, you should press on the importance of protecting the privately managed fund by your employer. A plan which is covered by fidelity bond would not necessarily cover the things which are protected under Employee retirement income security act and the ERISA Bond. Further, this bond must be obtained from the list of reinsurers provided by the department of Treasury.

Who is required to be bonded under ERISA?

Every person who is managing the retirement funds is required to be bonded unless there is exemption available under ERISA law. There are certain circumstances where a person is considered to be handling the funds or the retirement assets and these circumstances are enlisted below:

  • When he is in physical contact with cash, other assets, or the retirement income
  • He is in charge of supervisory activities and has the power to make decisions regarding applicability of ERISA
  • He has a power to transfer funds or property in his name or in the name of a third party
  • He has the authority to disburse funds
  • He has complete authority of signing the documents including cheques and demand drafts etc.

It is especially important to plan your retirement benefits because this will bring a peace of mind when you are in job that you will never get out of cash in the retirement phase of your life. Normally, people do not plan anything and consider it unnecessary, however it is one most important thing to do especially when you are in your job. Further, you should always ensure that the privately managed retirement plan is under proper authority of Employee Retirement Income Security Act.