Fidelity Bonds under The Pension Protection Act of 2006

Fidelity Bonds under the
Pension Protection Act of 2006

Before PPA-2006, each person subject to the bonding
requirement had to be covered by a bond in an
amount equal to at least 10% of the plan assets
handled by such person, with a minimum bond
amount of $1,000, and a maximum of $500,000

PPA-2006 raises the maximum bond amount to
$1,000,000 for a plan that holds employer securities,
regardless of whether a bonded person actually
handles employer securities. Although a technical
explanation states that Congress did not consider a
plan to hold employer securities if it owns them
through a broadly diversified fund, the scope or
effect of this indication is unclear. The technical
explanation refers to mutual funds and index funds.
Since Mutual Funds are not considered to hold Plan Assets,
having employer securities in a Mutual Fund does not incur the
higher bonding. However, Hedge Funds holding Employer Securities
as an option under the plan would be subject to the higher bondng requirement.