What type of insurance or bond can a TPA firm obtain to cover dishonest acts by its employees with respect to the assets of individual plans the firm administers?

We perform daily recordkeeping and place buy and sell orders through a custodian/trading platform. We don't generally handle funds going into a plan because deposits are made directly with a bank custodian. We instruct the custodian to liquidate funds when a distribution is required, based on signed authorization of the Plan Administrator. We then instruct the custodian to issue a distribution check. It is possible for misappropriation of funds at this stage. How can the plan's we service be insured against such a loss?

Should our firm be listed as a covered person on the each plan's ERISA fidelity bond?

An employee dishonesty bond will indemnify our firm from loss but I don't think the assets of a plan we service would be covered.

How have other addressed this?

The type of insurance you need is called errors and omissions insurance, often referred to as malpractice insurance. There are no more than five insurance companies that offer such insurance for retirement plan administration firms.

If your firm is acting as a fiduciary, it would not be a bad idea to be added to the ERISA bond also.

Another thing to ensure a single person acting alone can not do this is what we accountants call seperation of duties. Am guessing you think someone in your shop may try to take a distribution of their own from someone elses plan.

Have a check list -
Have one person calculate the amount to be distributed and sign off.

have second person verify the documentation (signatures, real employee, termination occured) and sign off

have third person send instructions to custodian and sign off.

If you have small shop - have at least two people involved with the transaction.

Thanks for the responses.

We have E&O coverage through CalSurance. The policy EXCLUDES "Any Claim arising out of any misappropriation, commingling of or failure to safeguard funds."

We have more than one person looking at distributions. If a loss should occur I still need some way to protect our Company. Bankruptcy is not very attractive to me!

I may be making too much of this but when I think about what could happen it makes me want to find a way to cover such a loss with insurance. We need a safety net.

You are really looking for Fiduciary Liability Insurance not E &O.