(a) Term of the bond. The amount of any required bond must in each
instance be based on the amount of funds ``handled'' and must be fixed
or estimated at the beginning of the plan's reporting year, that is, as
soon after the date when such year begins as the necessary information
from the preceding reporting year can practicably be ascertained. This
does not mean, however, that a new bond must be obtained each year.
There is nothing in the Act that prohibits a bond for a term longer than
one year, with whatever advantages such a bond might offer by way of a
lower premium. However, at the beginning of each reporting year the bond
shall be in at least the requisite amount. If, for any reason, the bond
is below the required level at that time, the existing bond shall either
be increased to the proper amount, or a supplemental bond shall be
obtained.
(b) Discovery period. A discovery period of no less than one year
after the termination or cancellation of the bond is required. Any
standard form written on a ``discovery'' basis, i.e., providing that a
loss must be discovered within the bond period as a prerequisite to
recovery of such loss, however, will not be required to have a discovery
period if it contains a provision giving the insured the right to
purchase a discovery period of one year in the event of termination or
cancellation and the insured has already given the surety notice that it
desires such discovery period.
(c) Other bond clauses. A bond shall not be adequate to meet the
requirements of section 13, if, with respect to
bonding coverage required under section 13, it contains a clause, or is
otherwise, in contravention of the law of the State in which it is
executed.
