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Content Last Revised: 12/27/63 |
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Code of Federal Regulations Pertaining to EBSA |
| Labor |
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| Pension and Welfare Benefits Administration, Department of Labor |
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| Temporary Bonding Rules |
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| Criteria for Determining Who Must Be Bonded |
29 CFR 2580.412-6 - Determining when ``funds or other property'' are ``handled'' so as to require bonding.
- Section Number: 2580.412-6
- Section Name: Determining when ``funds or other property'' are ``handled'' so as to require bonding.
(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 assests, 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.
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