The ERISA fidelity bond and how the DOL enforces audit quality

• Compute the required ERISA section 412 bond amount
• Test fidelity bond coverage and its reporting on Schedule H line 4e
• Describe the findings of the DOL’s 2015 audit quality study
• Identify the enforcement tools EBSA uses against deficient audits

The bonding requirement

ERISA section 412 requires every plan official who handles funds or other property of an employee benefit plan to be bonded. A person handles funds when there is a risk that the funds could be lost through that person's fraud or dishonesty, acting alone or with others. The bond protects the plan, which must be a named insured, against losses from fraud or dishonesty. It is not fiduciary liability insurance, which covers breaches of fiduciary duty.

The bond amount is fixed at the beginning of each plan year (29 CFR 2580.412-11 and ERISA section 412):

• at least 10 percent of the funds handled in the preceding reporting year;
• never less than $1,000;
• not required above $500,000 per plan; or
• not required above $1,000,000 for a plan that holds employer securities, or for a pooled employer plan.

The bond must cover losses from the first dollar up to the required amount, so a deductible within the required amount is not allowed. ERISA section 412 requires a corporate surety that is acceptable on federal bonds, which means a company on the Treasury's approved surety list.

Testing the bond

1. Obtain the bond or policy and confirm the plan is a named insured.
2. Identify who handles plan funds: trustees, committee members, and employees who handle contributions or approve distributions.
3. Compute the required amount: 10 percent of funds handled, within the floor and cap.
4. Compare the coverage, check the policy period covers the plan year and look for a deductible.
5. Agree the answer on Schedule H line 4e (or Schedule I or Form 5500-SF) to the evidence.

An insufficient or missing bond is a violation of ERISA and a reportable finding. The fidelity bond page covers exemptions and multi-plan bonds.

How the DOL watches plan audits

EBSA's Office of the Chief Accountant reviews plan audits. Its May 2015 study, Assessing the Quality of Employee Benefit Plan Audits, examined a statistically valid sample of 400 audits for the 2011 filing year from 81,162 Form 5500 filings with CPA reports. It found that 39 percent contained major deficiencies with respect to one or more relevant GAAS requirements, which would lead to rejection of the filing. Firms that performed the fewest plan audits had a 76 percent deficiency rate, against 12 percent for the firms that performed the most.

The study described the tools EBSA uses, including letters rejecting deficient or incomplete filings, referrals of practitioners to the AICPA's Professional Ethics Division and state boards of accountancy, and referrals within EBSA for enforcement. A rejected filing means the plan's annual report is incomplete, which exposes the administrator to the ERISA section 502(c)(2) civil penalty of up to $2,739 a day under the 2025 Form 5500 instructions.

What that means for your practice

Plan audits are specialized. The AICPA's quality management standards require firms to staff engagements with people who have the competence and time to do them, and the DOL study shows what happens when a firm does a handful a year without that investment. Peer reviewers select ERISA audits as must-select engagements in system reviews. The EBSA findings guide lists the areas EBSA cites most.

Common file mistakes

• Bond coverage compared to plan assets at year-end instead of funds handled in the prior year.
• Bond names the sponsor but not the plan.
• Line 4e answered "Yes" with no evidence in the file.

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