Although many insurance companies sell ERISA bonds, these securities do not function like insurance. Instead, they act as a security against mismanagement from plan managers. If the damages to the plan exceed the amount of the ERISA bond, the company must make up the difference. For instance, if the plan manager sells off company stock held in the plan for $2.5 million and pockets the proceeds, the ERISA bond covers the first $1 million and the company must make up the remaining $1.5 million.
Any individual who can put an employee benefit plan at risk from mishandling of funds must be bonded. The ERISA statute does not call for plan sponsors to purchase bonds for service providers outside the company structure, but companies typically buy ERISA bonds for fiduciaries and employees who manage benefit plans.