Types of Fidelity Bonds
Fidelity Bonds | Unlike Surety Bonds, Business Services Bonds protect against the loss of a customer’s money, equipment, supplies and personal belongings caused by dishonest acts of your employees while on the customer’s premises. Beyond protection, this type of fidelity bond is great for differentiating your business from competitors who aren’t bonded for fidelity.
The Employee Retirement Income Security Act of 1974 requires trustees of pension plans to have fidelity bond coverage equal to at least 10% of the total plan’s assets. ERISA bonds protect participants and beneficiaries from the dishonest acts of a fiduciary who handles employee benefit or pension plans, including 401(k)s.
BREAKING DOWN ‘Fidelity Bond’ AKA Honesty Bond
Despite its name, a fidelity bond is solely an insurance policy and is neither tradable nor can it accrue interest like a regular bond. It is also known as an “honesty bond.”
Should be Part of a Risk Management Strategy
Fidelity bonds can be considered part of a business’s risk management strategy. Such an insurance policy as a sort of protection should the company suffer losses caused by fraudulent or criminal employee actions taken against the company or its clientele. This can include cash thefts from the business as well as if the employee steals from a customer of the company. Acts of forgery by an employee that affect the business may also be covered by this type of policy. Robbery and burglary of the company safe, destruction of company property, and the illicit transfer of funds are also covered by fidelity bonds.
Fidelity Bonds for Certain Types of Circumstances
Specialized forms of fidelity bond may cover particular instances, such as employees committing fraud or illicit acts while performing services for customers. For example, if a window repair worker is sent to a home that was damaged by a storm and steals jewelry from the residence, the company may have exposure concerning their employee’s actions. Likewise, if a dog sitter were to use their access to a client’s home to steal money, or if a home health provider took clothes or a laptop from a client, a fidelity bond tailored for such circumstances could provide the company coverage for its needs.
Misappropriation of Funds
Some types of fidelity bonds may be mandated for businesses to obtain. Protecting the company’s retirement plan assets can require fidelity bonds in the event an employee gains access to and misappropriates assets set aside for retirement plans. These ERISA fidelity bonds usually encompass bonding anyone who normally has access to the company’s retirement assets. The individuals might be bonded for up to 10 percent of the value of the funds they are permitted access to in the retirement plan.
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