ERISA Fidelity Bond vs. Fiduciary Liability Insurance: What Plan Sponsors Need to Know

To safeguard your 401(k) plan and the individuals who manage it, there are several types of insurance policies available—including ERISA fidelity bonds, fiduciary liability insurance, and cybersecurity insurance. While each serves a different purpose, they collectively help protect your business, your employees’ retirement savings, and your fiduciary team from financial risks.

Below, we’ll walk you through what each type covers, who needs it, and how it works.

Who needs to be covered?

If you are a plan sponsor, administrator, or trustee handling plan assets, you are considered a fiduciary under ERISA (Employee Retirement Income Security Act of 1974). That means you are legally responsible for acting in the best interest of plan participants.

To manage these responsibilities and reduce risk, there are three main types of insurance you should be aware of:

• ERISA Fidelity Bond – required by law for most plans
• Fiduciary Liability Insurance – optional, but recommended
• Cybersecurity Insurance – optional, depending on your systems and providers

ERISA Fidelity Bond

What is it?

A Fidelity Bond, also known as an ERISA bond, protects your 401(k) plan and it's participants from losses caused by fraud or dishonesty by anyone who handles plan funds or property. This includes theft, embezzlement, forgery, or misuse of plan assets.

Do I need one?

Yes, if your plan covers employees. ERISA requires every 401(k) plan to have a Fidelity Bond, unless the plan covers only a sole proprietor, partners, or their spouses. Those types of owner-only plans are exempt.

What happens if I don’t have one?

Without a Fidelity Bond:

• The plan isn’t protected against fraud or misappropriation.
• Fiduciaries may be held personally liable for losses.
• Your annual Form 5500 will show a missing bond, which may trigger a Department of Labor (DOL) audit.
• How much coverage do I need?
• The bond must cover at least 10% of plan assets handled in the previous year.
• The minimum coverage amount is $1,000.
• The maximum coverage is generally $500,000 (or $1,000,000 if your plan holds employer stock).

How do I check if I have a Fidelity Bond?

Start by checking with your company’s insurance broker. An ERISA bond may have been included with your general business insurance policies, if you had the 401(k) plan in place at the time you acquired coverage, but it’s essential that:

• The 401(k) plan is specifically named as the insured party.
• The bond is issued by a provider listed in the U.S. Treasury’s Circular 570 .

How can I get a Fidelity Bond?

To purchase a bond online quickly and easily, visit our partners at Colonial Insurance www.colonialdirect.com and enter referral code CA0293 when prompted, or reach out to a provider on the U.S. Treasury's list linked above. 

For additional details, see our Fidelity Bond Guide.

Fiduciary Liability Insurance

What is it?

Fiduciary liability insurance protects you—the fiduciaries —against claims resulting from accidental breaches of fiduciary duty, such as:

• Failing to monitor investment options
• Errors in plan administration
• Mismanaging plan fees
• Failing to follow the plan document

How is this different from a Fidelity Bond?

Important: Fiduciary liability insurance does not satisfy the ERISA bonding requirement.

Cybersecurity Insurance

What is it?

Cybersecurity insurance provides protection against losses and legal exposure resulting from a data breach, hacking incident, or other cyberattack that compromises participant data or plan assets.

This coverage may include:

• Legal defense costs
• Notification and credit monitoring for affected participants
• Regulatory penalties
• Data recovery and system repairs

Is cybersecurity insurance required?

No, but the Department of Labor has emphasized the importance of cybersecurity in retirement plan administration. If your 401(k) plan uses digital platforms to manage or access participant data (as most do), cybersecurity coverage can reduce your risk in the event of a breach.

What else can I do to protect participant data?

• Choose service providers who follow DOL cybersecurity best practices
• Require multi-factor authentication
• Use encryption for participant data
• Maintain a formal cybersecurity policy and incident response plan

Key Differences Between 401(k) Plan Insurance Coverage Types

What action should I take to ensure my plan has proper ERISA Bond coverage?

• Confirm whether your plan has a Fidelity Bond that meets ERISA requirements.
• Review your current insurance policies with your broker to determine if you have fiduciary liability and cybersecurity insurance.
• Ensure your Fidelity Bond is issued by an approved surety and lists your plan as a covered entity.
• Send a copy of your bond certificate to Ubiquity so we can update your plan records and ensure accurate reporting on your Form 5500.

Need Help?

If you to update your bond information or have questions about obtaining a bond, please contact us.