Small Private Tax-Exempt Groups Must Purchase Fidelity Bond for 403(b) Plans

Small private tax-exempt organizations with 403(b) plans are required to purchase a fidelity bond with minimum coverage of 10% of plan assets or $1,000, regardless of asset size, to protect against losses due to fraud or mismanagement, with failure to comply potentially leading to plan audits and legal consequences." This description focuses on the primary topic of the fidelity bond requirement, the main entities of small private tax-exempt organizations with 403(b) plans, and the context of plan administration and regulations. It also highlights the significant action of purchasing a fidelity bond and the consequences of non-compliance. The description provides objective and relevant details that will guide the AI in creating an accurate visual representation of the article's content, such as an image of a small organization's office with a 403(b) plan document and a fidelity bond certificate, or a graphic illustrating the minimum coverage requirements.

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Nitish Verma
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Small Private Tax-Exempt Groups Must Purchase Fidelity Bond for 403(b) Plans

Small Private Tax-Exempt Groups Must Purchase Fidelity Bond for 403(b) Plans

Small private tax-exempt organizations with 403(b) plans are required to purchase a fidelity bond with minimum coverage of 10% of plan assets or $1,000, regardless of asset size. This requirement applies to all plans, with no exceptions based on asset or plan size.

Why this matters: This requirement has significant implications for the financial security of small private tax-exempt organizations and their employees, as it helps protect against losses due to fraud or mismanagement. Failure to comply with this requirement can lead to plan audits and potential legal consequences, highlighting the importance of understanding and adhering to these regulations.

The minimum required coverage is the greater of 10% of plan assets or $1,000, measured by the amount of assets held during the previous plan year. For a plan with less than $100,000 in assets, the minimum coverage would be $10,000, which is 10% of plan assets.

Failing to report a fidelity bond on Form 5500 or Form 5500-SF could trigger a plan audit. Kimberly Boberg, Kelly Geloneck, Emily Gerard, and David Levine from Groom Law Group, along with Michael A. Webb from CAPTRUST, emphasize the importance of complying with this requirement to avoid potential plan audits.

It is recommended that organizations speak to an insurance broker familiar with their 403(b) plan to ensure the correct fidelity bond is purchased. This article is part of a Q&A series featuring experts from Groom Law Group and CAPTRUST, who provide guidance on retirement plan administration and regulations.

The fidelity bond requirement for small private tax-exempt organizations with 403(b) plans applies regardless of asset size. Organizations should ensure they purchase the minimum required coverage of 10% of plan assets or $1,000 and properly report the bond on Form 5500 or 5500-SF to avoid triggering a plan audit.

Key Takeaways

  • Small private tax-exempt orgs with 403(b) plans require a fidelity bond.
  • Minimum coverage: 10% of plan assets or $1,000, regardless of asset size.
  • Failing to report the bond can trigger a plan audit.
  • Speak to an insurance broker to ensure correct fidelity bond purchase.
  • Properly report the bond on Form 5500 or 5500-SF to avoid audits.