DoL Says That ERISA Bonds Must Only Cover Discretionary Advisers
The Department of Labor has stated that only investment advisers that “handle” funds of an employee benefit plan must be covered by the plan’s ERISA bond (which protects the plan against losses due to fraud or dishonesty). In Field Assistance Bulletin 2008-04, the DoL explained that a person ”handles” plan funds if there is a risk that such funds could be lost in the event of fraud or dishonesty. The DoL defines “handling” to include physical contact, the power to transfer funds, disbursement authority, check-writing authority, and supervision of such functions. The DoL explained that an investment adviser would not necessarily handle plan funds unless such adviser exercises investment discretion. The Bulletin addresses several other matters including the amount of the bond and persons responsible for obtaining and maintaining it.
OUR TAKE: Just because an adviser need not be covered by a bond does not mean that the adviser should not obtain insurance (e.g. professional liability, E&O) to cover losses due to errors rather than fraud and dishonesty.