ERISA Bonds: What They Are And Why You Need One

The Employee Retirement Income Security Act of 1974 (ERISA)  is a federal law regarding the standards and regulations for private pension plans, including funding mechanisms, vesting requirements, and plan design. An ERISA bond's main purpose is to protect participants of the plan from misallocation of funds by the administrators or trustees of the plan. 

If you are a business owner who has set up a 401(k) retirement plan for your employees, it is a requirement that you obtain a fiduciary bond of at least 10% of the total asset value. For example, if you sponsor a retirement plan with $300,000 in assets, you would require a bond for at least $30,000.

The good news is that ERISA bonds are easy to obtain and incredibly cost-effective. The average cost runs approximately $1500 for a 3 year term on a $250,000 bond which is typically plenty for a cannabis business that is getting their retirement plan set up and situated. Retirement plan advisers will typically recommend that business owners contact their insurance broker to add this very crucial coverage. 

When purchasing this bond, make sure it includes an automatic rider that will extend to meet the 10% of asset requirement. As the plan grows, you need to be certain that the bond will extend. 

Cannabis Insurance Associates has helped several of our clients obtain a bond that covers their plan. Feel free to reach out to us with any questions on this type of coverage, or 401(k) plans in general. We have a retirement planning and financial advising department, ready to help with your every need.