Wondering About PEPs and Fidelity Bonds?

As growing numbers of plan sponsors choose pooled employer plans, or PEPs, we’re hearing more PEP-related questions. One common one is, “Do recordkeepers hold fidelity bonds for its PEP clients?”

For The Standard, the answer is “yes.” That’s because Standard Retirement Services would also be the pooled plan provider, which is the entity that’s required to hold the fidelity bond in a PEP.

Fidelity bonds are a type of insurance in case funds are stolen from a company’s 401(k) plan. They protect against losses — physical or financial — that might affect an employee’s ability to cash in on retirement benefits.

The Employee Retirement Income Security Act of 1974, or ERISA, requires every person who handles funds or other property for 401(k) plans be covered by a fidelity bond.* As our PEP’s pooled plan provider, Standard Retirement Services, Inc., is covered under a corporate bonding and risk management program consistent with any bonding obligations under ERISA.

The SECURE Act doesn’t require that a participating employer obtain a fidelity bond while participating in a PEP. However, certain responsibilities and liabilities may stay at the participating employer level, even though technically they’re part of a PEP. Obtaining a bond or fiduciary liability insurance can provide additional protection to an employer.

For example, an employee of the participating employer could embezzle participant deferrals after they’re withheld through payroll but before they’re deposited to the plan. The employer would be responsible for making the contribution to the plan even if the amounts are not recovered. The participating employer may wish to have a fidelity bond to cover losses in this situation. This type of loss would not be covered or reimbursed to the employer.

To learn more about fidelity bonds, read Fidelity Bonds: Insurance Coverage Required by ERISA.