Why Does a 457(b) Plan Not Need Fidelity Bond Coverage?

“I work in the benefits department of a private health care provider. Our 403(b) and 401(a) plans have fidelity bond coverage, but our 457(b) plan does not. Should I be concerned about this?”

Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

The reason your 403(b) and 401(a) plans have fidelity bond coverage is likely due to the fact that they are subject to the Employee Retirement Income Security Act (ERISA). Fidelity bond coverage is required under ERISA section 412. Since 457(b) plans are generally not subject to ERISA (as governmental, non-qualified church-controlled organization, or top hat), such plans do not need to comply with the fidelity bond requirement under ERISA section 412. However, you should probably ask your fidelity bond provider if it would issue coverage against employee fraud/theft/dishonesty for your 457(b) plan to see what they say—it would be a good idea to have coverage for such a liability to be consistent across plans.  Note, too, that fidelity bond coverage is not the same as fiduciary insurance.  For more information on fidelity bond coverage, check out our Ask the Experts column on the subject.

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

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