U.S. Code of Federal Regulations
Regulations most recently checked for updates: Dec 04, 2023
Section 13(a) of the Welfare and Pension Plans Disclosure Act of 1958, as amended, states, in part, that:
Every administrator, officer and employee of any employee welfare benefit plan or of any employee pension benefit plan subject to this Act who handles funds or other property of such plan shall be bonded as herein provided; except that, where such plan is one under which the only assets from which benefits are paid are the general assets of a union or of an employer, the administrator, officers and employees of such plan shall be exempt from the bonding requirements of this section.
* * * Such bond shall provide protection to the plan against loss by reason of acts of fraud or dishonesty on the part of such administrator, officer, or employee, directly or through connivance with others.
Only completely unfunded plans in which the plan benefits derive solely from the general assets of a union
(a) Any benefits thereunder are provided or underwritten by an insurance carrier or service or other organization, or
(b) There is a trust or other separate entity to which contributions are made or out of which benefits are paid, or
(c) Contributions to the plan are made by the employees, either through withholding or otherwise, or from any source other than the employer or union involved, or
(d) There is a separately maintained bank account or separately maintained books and records for the plan or other evidence of the existence of a segregrated or separately maintained or administered fund out of which plan benefits are to be provided.
(a) Administrator. (1) For purposes of the bonding provisions, the term “administrator” is defined in the same manner as under section 5 of the Act and refers to:
(i) The person or persons designated by the terms of the plan or the collective bargaining agreement with responsibility for the ultimate control, disposition, or management of the money received or contributed; or
(ii) In the absence of such designation, the person or persons actually responsible for the control, disposition, or management of the money received or contributed, irrespective of whether such control, disposition, or management is exercised directly or through an agent or trustee designated by such person or persons.
(2) Where by virtue of this definition, or regulations, interpretations or opinions issued with respect thereto, the term embodies natural persons such as members of the board of trustees of a trust, the bonding requirements shall apply to such persons.
(3) However, when by virtue of this definition or regulations, interpretations, or opinions issued with respect thereto, the administrator in a given case in an entity such as a partnership, corporation, mutual company, joint stock company, trust, unincorporated organization, union or employees' beneficiary association, the term shall be deemed to apply, in meeting the bonding requirements, only to those natural persons who:
(i) Are vested under the authority of the entity-administrator with the responsibility for carrying out functions constituting control, disposition or management of the money received or contributed within the definition of administrator, or who, acting on behalf of or under the actual or apparent authority of the entity-administrator, actually perform such functions, and who
(ii) “Handle” funds or other property of the plan within the meaning of these regulations.
(b) Officers. For purposes of the bonding provisions, the term “officer” shall include any person designated by the terms of a plan or collective bargaining agreement as an officer, any person performing or authorized to perform executive functions of the plan or any member of a board of trustees or similar governing body of a plan. The term shall include such persons regardless of whether they are representatives of or selected by an employer, employees or an employee organization. In its most frequent application the term will emcompass those natural persons appointed or elected as officers of the plan or as members of boards or committees performing executive or supervisory functions for the plan, but who do not fall within the definition of administrator.
(c) Employees. For purposes of the bonding provisions the term “employee” shall, to the extent a person performs functions not falling within the definition of officer or administrator, include any employee who performs work for or directly related to a covered plan, regardless of whether technically he is employed, directly or indirectly, by or for a plan, a plan administrator, a trust, or by an employee organization or employer within the meaning of section 3(3) or 3(4) of the Act.
(d) Other persons covered. For purposes of the bonding provisions, the terms “administrator, officer, or employee” shall include any persons performing functions for the plan normally performed by administrators, officers, or employees of a plan. As such, the terms shall include persons indirectly employed, or otherwise delegated, to perform such work for the plan, such as pension consultants and planners, and attorneys who perform “handling” functions within the meaning of § 2580.412–6. On the other hand, the terms would not include those brokers or independent contractors who have contracted for the performance of functions which are not ordinarily carried out by the administrators, officers, or employees of a plan, such as securities, brokers who purchase and sell securities or armored motor vehicle companies.
The affirmative requirement for bonding persons falling within the definition of administrator, officer or employee is applicable only if they handle “funds or other property” of the plan concerned. The term “funds or other property” is intended to encompass all property which is used or may be used as a source for the payment of benefits to plan participants. It does not include permanent assets used in the operation of the plan such as land and buildings, furniture and fixtures or office and delivery equipment used in the operation of the plan. It does include all items in the nature of quick assets, such as cash, checks and other negotiable instruments, government obligations and marketable securities. It also includes all other property or items convertible into cash or having a cash value and held or acquired for the ultimate purpose of distribution to plan participants or beneficiaries. In the case of a plan which has investments, this would include all the investments of the plan even though not in the nature of quick assets, such as land and buildings, mortgages, and securities in closely held corporations. However, in a given case, the question of whether a person was “handling” such “funds or other property” so as to require bonding would depend on whether his relationship to this property was such that there was a risk that he, alone or in connivance with others, could cause a loss of such “funds or other property” through fraud or dishonesty.
With respect to any contribution to a plan from any source, including employers, employees or employee organizations, the point at which any given item or amount becomes “funds or other property” of a plan for purposes of the bonding provisions shall be determined as described in this section.
(a) Where the plan administrator is a board of trustees, person or body other than the employer or employee organization establishing the plan, a contribution to the plan from any source shall become “funds or other property” of the plan at the time it is received by the plan administrator. Employee contributions collected by an employer and later turned over to the plan administrator would not become “funds or other property” of the plan until receipt by the plan administrator.
(b) Where the employer or employee organization establishing the plan is itself the plan administrator:
(1) Contributions from employees or other persons who are plan participants would normally become “funds or other property” of the plan at the time they are received by the employer or employee organization, except however that contributions made by withholding from employees' salaries shall not be considered “funds or other property” of the plan for purposes of the bonding provisions so long as they are retained in and not segregated in any way from the general assets of the withholding employer or employee organization.
(2) Contributions made to a plan by such employer or employee organization and contributions made by withholdings from employees' salaries would normally become “funds or other property” of the plan if and when they are taken out of the general assets of the employer or employee organization and placed in a special bank account or investment account; or identified on a separate set of books and records; or paid over to a corporate trustee or used to purchase benefits from an insurance carrier or service or other organization; or otherwise segregated, paid out or used for plan purposes, whichever shall occur first. Thus, if a plan is operated by a corporate trustee and no segregation from general assets is made of monies to be turned over to the corporate trustee prior to the actual transmittal of such monies, the contribution represented in the transmission becomes “funds or other property” of the plan at the time of receipt by the corporate trustee. On the other hand, if a special fund is first established from which monies are paid over to the corporate trustee, a given item would become “funds or other property” of the plan at the time it is placed in the special fund. Similarly, if plan benefits are provided through the medium of an insurance carrier or service or other organization and no segregation from general assets of monies used to purchase such benefits is made prior to turning such monies over to the organization contracting to provide benefits, plan funds or other property come into being at the time of receipt of payment for such benefits by the insurance carrier or service or other organization. In such a case, the “funds or other property” of the plan would be represented by the insurance contract or other obligations to pay benefits and would not be normally subject to “handling”. Bonding would not be required for any person with respect to the purchase of such benefits directly from general assets nor with respect to the bare existence of the contract obligation to pay benefits. However, if the particular, arrangement were such that monies derived from, or by virtue of, the contract did subsequently flow back to the plan, bonding may be required if such monies returning to the plan are handled by plan administrators, officers or employees. (Further discussion on bonding of insured plans is contained in § 2580.412–6(b)(7)).
(a) General scope of term. (1) A plan administrator, officer, or employee shall be deemed to be “handling” funds or other property of a plan, so as to require bonding under section 13, whenever his duties or activities with respect to given funds or other property are such that there is a risk that such funds or other property could be lost in the event of fraud or dishonesty on the part of such person, acting either alone or in collusion with others. While ordinarily, those plan administrators, officers and employees who “handle” within the meaning of section 13 will be those persons with duties related to the receipt, safekeeping and disbursement of funds, the scope of the term “handles” and the prohibitions of paragraph (b) of section 13 shall be deemed to encompass any relationship of an administrator, officer or employee with respect to funds or other property which can give rise to a risk of loss through fraud or dishonesty. This shall include relationships such as those which involve access to funds or other property or decisionmaking powers with respect to funds or property which can give rise to such risk of loss.
(2) Section 13 contains no exemptions based on the amount or value of funds or other property “handled”, nor is the determination of the existence of risk of loss based on the amount involved. However, regardless of the amount involved, a given duty or relationship to funds or other property shall not be considered “handling”, and bonding is not required, where it occurs under conditions and circumstances in which the risk that a loss will occur through fraud or dishonesty is negligible. This may be the case where the risk of mishandling is precluded by the nature of the funds or other property (e.g., checks, securities or title papers which can not be negotiated by the persons performing duties with respect to them). It may also be the case where significant risk of mishandling in the performance of duties of an essentially clerical character is precluded by fiscal controls.
(b) General criteria for determining “handling”. Subject to the application of the basic standard of risk of loss to each situation, general criteria for determining whether there is “handling” so as to require bonding are:
(1) Physical contact. Physical contact with cash, checks or similar property generally constitutes “handling”. However, persons who from time to time perform counting, packaging, tabulating, messenger or similar duties of an essentially clerical character involving physical contact with funds or other property would not be “handling” when they perform these duties under conditions and circumstances where risk of loss is negligible because of factors such as close supervision and control or the nature of the property.
(2) Power to exercise physical contact or control. Whether or not physical contact actually takes place, the power to secure physical possession of cash, checks or similar property through factors such as access to a safe deposit box or similar depository, access to cash or negotiable assets, powers of custody or safekeeping, power to withdraw funds from a bank or other account generally constitutes “handling”, regardless of whether the person in question has specific duties in these matters and regardless of whether the power or access is authorized.
(3) Power to transfer to oneself or a third party or to negotiate for value. With respect to property such as mortgages, title to land and buildings, or securities, while physical contact or the possibility of physical contact may not, of itself, give rise to risk of loss so as to constitute “handling”, a person shall be regarded as “handling” such items where he, through actual or apparent authority, can cause those items to be transferred to himself or to a third party or to be negotiated for value.
(4) Disbursement. Persons who actually disburse funds or other property, such as officers or trustees authorized to sign checks or other negotiable instruments, or persons who make cash disbursements, shall be considered to be “handling” such funds or property. Whether other persons who may influence, authorize or direct disbursements or the signing or endorsing of checks or similar instruments will be considered to be “handling” funds or other property shall be determined by reference to the particular duties or responsibilities of such persons as applied to the basic criteria of risk of loss.
(5) Signing or endorsing checks or other negotiable instruments. In connection with disbursements or otherwise, any persons with the power to sign or endorse checks or similar instruments or otherwise render them transferable, whether individually or as co-signers with one or more persons, shall each be considered to be “handling” such funds or other property.
(6) Supervisory or decision making responsibility. To the extent a person's supervisory or decision making responsibility involves factors in relationship to funds discussed in paragraph (b)(1), (2), (3), (4), or (5) of this section, such persons shall be considered to be “handling” in the same manner as any person to whom the criteria of those paragraphs apply. To the extent that only general responsibility for the conduct of the business affairs of the plan is involved, including such functions as approval of contracts, authorization of disbursements, auditing of accounts, investment decisions, determination of benefit claims and similar responsibilities, such persons shall be considered to be “handling” whenever the facts of the particular case raise the possibility that funds or other property of the plan are likely to be lost in the event of their fraud or dishonesty. The mere fact of general supervision would not necessarily, in and of itself, mean that such persons are “handling.” Factors to be accorded weight are the system of fiscal controls, the closeness and continuity of supervision, who is in fact charged with, or actually exercising final responsibility for determining whether specific disbursements, investments, contracts, or benefit claims are bona fide, regular and made in accordance with the applicable trust instrument or other plan documents.
(i) For example, persons having supervisory or decisionmaking responsibility would be “handling” to the extent they:
(a) Act in the capacity of plan “administrator” and have ultimate responsibility for the plan within the meaning of the definition of “administrator” (except to the extent that it can be shown that such persons could not, in fact, cause a loss to the plan to occur through fraud or dishonesty);
(b) Exercise close supervision over corporate trustees or other parties charged with dealing with plan funds or other property; exercise such close control over investment policy that they, in effect, determine all specific investments;
(c) Conduct, in effect, a continuing daily audit of the persons who “handle” funds;
(d) Regularly review and have veto power over the actions of a disbursing officer whose duties are essentially ministerial.
(ii) On the other hand, persons having supervisory or decisionmaking responsibility would not be “handling” to the extent:
(a) They merely conduct a periodic or sporadic audit of the persons who “handle” funds;
(b) Their duties with respect to investment policy are essentially advisory;
(c) They make a broad general allocation of funds or general authorization of disbursements intended to permit expenditures by a disbursing officer who has final responsibility for determining the propriety of any specific expenditure and making the actual disbursement;
(d) A bank or corporate trustee has all the day to day functions of administering the plan;
(e) They are in the nature of a Board of Directors of a corporation or similar authority acting for the corporation rather than for the plan and do not perform specific functions with respect to the operations of the plan.
(7) Insured plan arrangements. In many cases, plan contributions made by employers or employee organizations or by withholding from employee's salaries are not segregated from the general assets of the employer or employee organization until payment for purchase of benefits from an insurance carrier or service or other organization. No bonding is required with respect to the payment of premiums or other payments made to purchase such benefits directly from general assets, nor with respect to the bare existence of the contract obligation to pay benefits. Such arrangements would not normally be subject to bonding except to the extent that monies returned by way of benefit payments, cash surrender, dividends, credits or otherwise, and which by the terms of the plan belonged to the plan (rather than to the employer, employee organization, insurance carrier or service or other organization) were subject to “handling” by plan administrators, officers or employees.