Does Your Company Offer Employee Retirement Accounts? What You Need To Know About Fiduciary Bonds

Finance & Money Blog

If you own a business, and you provide employee retirement benefits, you need to ensure that any person who has control over the retirement accounts be bonded through a fiduciary bond. The fiduciary bond protects your employees against losses, and mismanagement, that could affect their retirement accounts. If you're not sure what fiduciary bonds are, here's some basic information that will help you understand the process:

Fiduciary Bonds Protect Against Fraud and Dishonest Dealings

Wherever there are employee retirement accounts, the possibility of fraud and dishonest dealings will exist. This is true of any retirement account, especially when there are only a handful of people who have access to those accounts. Unfortunately, when fraud and dishonest dealings occur, employees can find their entire retirement accounts wiped out. When that happens, employees have little, to no, legal recourse. That's where a fiduciary bond comes into play. Fiduciary bonds protect retirement accounts against losses incurred through fraud and dishonest dealings. Some of the losses that are covered by a fiduciary bond include embezzlement, larceny, forgery, and misappropriation of funds.

Bond Amounts Must Be Appropriately Assessed

When it comes to setting bond limits, the coverage must be appropriately assessed at the beginning of the term. That means you'll need to assess those bond limits at the beginning of each fiscal year. In most cases, fiduciary bonds are established for a specific percentage of the actual monetary value of the account being handled. If the bond limit isn't assessed accurately, the retirement account may not be adequately protected against losses. If you're unsure about the bond amount you'll need, you should discuss the matter with your financial planner.

Fiduciary Bonds Protect Against Non-Fiduciary Agent Losses

When obtaining your fiduciary bond, it's important to note that the bond is not the same as fiduciary insurance. Where fiduciary insurance protects against fiduciary mishandling, fiduciary bonds protect employees against losses even if the responsible party was not acting as an official fiduciary agent. If you have fiduciary, and non-fiduciary agents handling your employee retirement accounts, you'll need both fiduciary liability insurance, and fiduciary bonds.

Coverage Must Be Clear and Understandable

If your company controls multiple employee accounts, they can all be protected under the same bonds. However, the bonds will need to be written in a way that is clear and understandable. To ensure clarity, each account must be identified in the bond, including the type of account it is, and how much the account is worth.

Don't risk losing your employee retirement accounts. The information provided here will help you understand fiduciary bonds, and how they relate to your employee retirement accounts.

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1 September 2017