ERISA Bond vs. Fiduciary Liability: You Need to Know the Difference

By Craig Santa Maria

If you provide a health or retirement plan for your employees, they expect it to be there when they need it. And if the people managing the plan act outside of the law, resulting in plan losses, they can be held personally liable to the plan members. If you are a trustee of your company’s benefits plan, do you know if you and your company are adequately protected?

It’s the Lawnest egg

In 1974, Congress enacted the Employee Retirement Income Security Act (ERISA) to protect plan participants and beneficiaries from fraud, theft or mismanagement by plan managers, or fiduciaries. Basically, ERISA established rules governing how voluntarily-created, private-sector retirement and health plans must be managed and it requires those companies to provide protection to participants in the form of an ERISA Fidelity Bond equal to 10% of the plan value.

For additional information about ERISA Fidelity Bonds, visit the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) website.

Know the difference

ERISA bonds protect plan participants, but many business owners wrongly believe ERISA bonds also protect fiduciaries, those who handle plan assets, from liability against losses arising from breaches of fiduciary responsibilities. That is not true, and it can leave you and your company exposed to costly judgments.

For example:

  • A group of employees sued retirement plan trustees, claiming a new outside plan administrator improperly delayed transferring fund balances, resulting in lost investment income. They were awarded more than $1 million and defense costs totaled $250,000.
  • A manufacturer failed to submit the required forms for an employee’s life insurance policy, but continued to deduct the premium from the employee’s paycheck. When the employee died, the life insurer denied the claim. The employee’s heirs sued the plan fiduciary and recovered $250,000.

Fortunately, in both of these cases the companies had protected their plan trustees with fiduciary liability insurance, which provided legal defense and covered the legal settlements.

3 Critical Considerations

Every employer should carefully answer these three questions to be sure you have the proper protections in place for your employees, your plan fiduciaries, and your company:

  1. Do you need an ERISA Fidelity Bond? If you offer most types of employee benefit plans, you most likely are required to purchase an ERISA Fidelity Bond. There are some exemptions; check the EBSA website for detailed ERISA information.
  1. Is your ERISA Fidelity Bond sufficient? The law requires that the bond cover at least 10% of the plan value in the previous year for each fiduciary, so if your company has multiple people who have fiduciary responsibilities, each must be bonded for at least 10%. The bond must be at least $1,000, but no more than $500,000, for each bonded plan official. Each person is responsible for his own bonding, so if the bond amount is insufficient, that person can be fined by the EBSA.
  1. Do you also need fiduciary liability insurance? Remember that the ERISA Fidelity Bond does not protect the fiduciary from liability resulting from breaches of fiduciary responsibility. Claims against the fiduciary put his personal assets at stake. Even if you have a Directors and Officers (D&O) liability policy, most do not cover fiduciary liability.

If these questions raise any doubt about whether you or your company are adequately protected from claims related to ERISA, speak with a high-quality, experienced broker to ensure your business and personal assets are covered.




Craig Santa Maria is President and COO of Santa Maria & Company (SMC), a risk management consultancy and commercial insurance brokerage in the San Francisco Bay area with deep expertise helping companies protect what is most important to them: their assets, their employees, and their futures. Contact SMC at 925-956-7600 or online at


Experts in Risk Management and Providing Peace of Mind

Foiling Fraud: 3 Actions to Minimize Employee Theft Losses

By Carl Santa Maria, CPCUemployee theft

How much can trusted employees steal from you before you catch them?

That is a question all business owners should ask themselves to determine if they have the right safeguards in place to prevent, minimize, or recover from employee theft.

According to the Association of Certified Fraud Examiners (ACFE) 2014 global fraud study:

  • The typical organization loses 5% of its revenue each year to employee fraud, with a median loss of $145,000
  • On average, the fraud continues for 18 months before detected
  • The smallest organizations suffer disproportionately large losses due to employee fraud.

Driven to steal

Often the perpetrator is a long-term, trusted employee, maybe even a family member, who has direct access to the financial working of the company. While the person might not fit the stereotype of a criminal, there might be an underlying issue such as drug, alcohol or gambling addiction that can drive him or her to steal.

The fraud can take many forms, but it most often involves taking small amounts of money or products over a long period, with manipulation of financial statements to hide the fraud. While most fraud is committed by low- and mid-level employees, high-level employees are responsible for 19% of fraud, with the highest average loss of $500,000.

A recent example is the conviction and sentencing of former Oklahoma state senator Rick Brinkley who admitted to stealing $1.8 million from the Better Business Bureau (BBB), where he had been an executive for the past 16 years.

Over a 10-year period, Brinkley created fraudulent invoices from fake corporations for services not rendered and then submitted them to the BBB as legitimate expenses, using the money to pay his bills and support his gambling habit.

Take action now

Going back to the opening question concerning how much an employee could steal before you find out, it’s important that you understand your current risk and do these three things to minimize your risk and potential losses:

  • Strengthen anti-fraud controls: Review the checks and balances and other safeguards you have in place to prevent and detect fraud. The better your controls, the quicker you will detect fraud and the lower your losses, according to the ACFE study.
  • Match insurance limits to expected losses: Most commercial package insurance policies cover crime-related losses, but the maximum is typically well below what you will actually lose.
  • Get expert advice: A high-quality, experienced insurance broker will help you determine your maximum potential losses from employee fraud, advise you on strengthening your anti-fraud controls, and help you set adequate insurance limits to protect your business.

No matter how dedicated and honest your employees might appear, it is important that you take these necessary steps to protect the business you have worked so hard to build.

Santa Maria,Carl-158999B


Carl Santa Maria is Chairman and CEO of Santa Maria & Company (SMC), a risk management consultancy and commercial insurance brokerage in the San Francisco Bay area with deep expertise helping companies protect what is most important to them: their assets, their employees, and their futures. Contact SMC at 925-956-7600 or online at


Experts in Risk Management and Providing Peace of Mind