Bank Fiduciary Bonds and ERISA Fidelity Bonds

An ERISA fidelity bond is specifically required by Section 412 of ERISA for anyone who handles funds or property of an employee benefit plan. It protects the plan against losses caused by fraud or dishonesty. A bank fiduciary bond is broader -- it covers the bank's fiduciary duties across all trust and estate accounts, not just employee benefit plans. Banks that serve as plan trustees need both: the ERISA bond for plan assets and the fiduciary bond for general trust activities. The ERISA bond minimum is the lesser of 10% of plan assets or $500,000 (up to $1 million for plans holding employer securities).

Nationally chartered banks regulated by the OCC are generally exempt from state-level fiduciary bond requirements because they operate under federal trust powers and are subject to OCC examination. However, they still need ERISA fidelity bonds for employee benefit plan activities. State-chartered banks that exercise trust powers must comply with both state banking department requirements and any applicable court bond orders. The exemption does not extend to situations where a court specifically orders a bond for a particular estate or trust.

Banks typically carry aggregate fiduciary bonds based on total assets under management in their trust department, not individual bonds for each account. A bank with $500 million in trust assets might carry a $5-10 million aggregate bond. For ERISA plans specifically, the bond must equal at least 10% of plan assets handled, with the $500,000 cap applying per plan. Some courts may require a separate, additional bond for a particular high-value estate or trust beyond what the aggregate bond covers.

Bank fiduciary bonds cover losses to trust beneficiaries and plan participants caused by the bank's employees engaging in fraud, theft, embezzlement, or misappropriation of trust funds. They also cover negligent administration, failure to follow trust or plan terms, improper investments violating the prudent investor standard, unauthorized transactions, and commingling of trust assets. The bond does not cover ordinary investment losses from market downturns or legitimate business decisions made in good faith.

Claims against bank fiduciary bonds are typically initiated by a trust beneficiary, estate heir, plan participant, or regulatory agency filing a complaint. The surety investigates the claim, which may involve reviewing trust accountings, examining investment records, and interviewing bank trust officers. If the claim is valid, the surety pays the claimant and then seeks indemnification from the bank. For ERISA plans, the Department of Labor can also initiate enforcement actions that trigger bond claims. Large claims may involve multi-year litigation.