Every administrator, officer, and employee of any plan who handles funds or other property of such plan must be bonded.
Administrator defined as -- a person charged with the control and management of the money received or contributed to the plan.
Officer defined as -- any person designated by the terms of the plan as on officer, any person performing or authorized to perform executive functions of the plan, or any members of the board of trustees or similar governing body of a plan.
Employee defined as -- any person who performs work for or directly related to a covered plan, regardless of whether technically they are employed by the plan, plan administrator, trust, or employer.
Funds or other property means -- all property which is used or may be used as a source of benefit payments, including quick assets such as cash, checks and securities, and other items convertible into cash. (This includes cash value of life insurance contracts.) It also includes all the investments of a plan, such as land, buildings, mortgages, and securities in closely held corporations. It does not include permanent assets such as land, buildings, and furniture used in the plan's operation. When a plan administrator is a board of trustees, person, or body other than the employer, a contribution from any source becomes "funds or other property" of the plan at the time it is received by the administrator.
The type of bond called for is an "honesty" bond. It is to protect the plan against loss "by reason of acts of fraud or dishonesty" on the part of an administrator, officer, or employee.
An individual bond is a single bond covering a single named person to a designated amount. A name bond is typically a single bond covering a list of named persons, each of them bonded separately to a designated amount. A position schedule bond is typically a single bond providing coverage for any holder of one or more specified positions during the term of the bond, each position being covered for a designated amount.
The Surety Company must be a corporate surety company, which is an acceptable surety on federal bonds holding a grant of authority from the Secretary of the Treasury. Each year the Treasury Department issues an official list of acceptable surety companies which may be obtained from: Audit Staff, Bureau of Account, Treasury Dept., Washington, D.C. 20226. Circular 570.
The amount of the bond must be at least 10% of the amount of the funds handled with a minimum of $1,000. The amount of funds handled for purposes of fixing the size of the bond is determined by the amount of funds handled in the preceding reporting year (or where the plan has not preceding reporting year, the amount of funds to be handled during the current reporting year). The maximum bond required is generally $500,000.
More than one person can be named on a bond or covered together on the same bond. However, such bond must allow for recovery by each plan for an amount at least equal to that which would be required if bonded separately. If a person has "handling" functions in more than one plan, the bond must be sufficient to cover the total amount "handled" by him in all plans covered under the bond.
A new bond does not have to be obtained each year. A bond can be for a term longer than one year. However, at the beginning of each reporting year, the bond must meet the requisite amount and if not, must be increased to the proper amount or supplemental bond obtained.
It is 'unlawful' for any person who is required to be bonded to exercise any control over funds or other property of the plan without being bonded. Moreover, it is unlawful for any administrator or other person in authority in the plan to allow the un-bonded individual to exercise such control.
