The Surety & Fidelity Association of America

1101 CONNECTICUT AVENUE, NW, SUITE 800, WASHINGTON, DC 20036 TEL: (202) 463-0600 — FAX: (202) 463-0606

website: http:/Avww.surety.org
E-mail; information @surety.org

July 8, 2015

Via Federal eRulemaking Portal

United States Department of Labor

Office of Regulations and Interpretations
Employee Benefits Security Administration
Attn: Conflict of Interest Rule

200 Constitution Avenue, NW

Room N-5655

Washington, DC 20210

Re: Notice of Proposed Rulemaking
Definition of the Term “Fiduciary”
RIN 1210-AB32

The Surety & Fidelity Association of America ("SFAA") is a non-profit corporation whose
member companies collectively write the majority of surety and fidelity bonds in the United
States. SFAA is a licensed rating or advisory organization in all states and is designated by state
insurance departments as a statistical agent for the reporting of fidelity and surety experience.
The vast majority of bonds that are provided to meet the bonding requirements of ERISA section
412 and related regulations (29 C.F.R. Part 2580) are provided by members of SFAA. SFAA
submits the following comments to seek clarity regarding how the captioned proposed
tulemaking would affect the scope of the bonding requirements under section 412.

ERISA section 412 and related regulations (29 C.F.R. Part 2580) generally require that every
fiduciary of an employee benefit plan and every person who handles funds or other property of
such a plan shall be bonded in order to protect employee benefit plans from the risk of loss
caused by fraud and dishonesty on the part of persons who “handle” plan funds or other property.
Such persons must be bonded for at least 10% of the amount of funds he or she handles, subject
to a maximum bond amount of $500,000 ($1,000,000 for plans that hold employer securities).

It is our understanding, and confirmed by the Department of Labor Field Assistance Bulletin
2008-04 that the conduct of all fiduciaries need not be covered by a bond. Fiduciaries must be
bonded only if they “handle” funds or other property of an employee benefit plan and do not fall
within one of the exemptions in section 412 or the regulations.



SFAA Comments

Notice of Proposed Rulemaking
Definition of the Term “Fiduciary”
RIN 1210-AB32

Page 2

Thus, the threshold in determining whether a person must be bonded is whether that person
“handles” fund of the plan. 29 CFR 2580-412-6(a)(1) states:

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.

The regulations and Field Assistance Bulletin also establish criteria for a person handles funds:

¢ physical contact (or power to exercise physical contact or control) with cash, checks or
similar property;

¢ power to transfer funds or other property from the plan to oneself or to a third party, or to
negotiate such property for value (e.g., mortgages, title to land and buildings, or
securities);

¢ disbursement authority or authority to direct disbursement;

¢ authority to sign checks or other negotiable instruments; or

¢ supervisory or decision-making responsibility over activities that require bonding

We seek confirmation that the broadened definition of a fiduciary as proposed in the captioned
rulemaking does not create a new class of persons that must be bonded. Please confirm that the
functions set forth in the proposed definition under 29 CFR 2510.3-21, without more, are not
sufficient to satisfy the criteria for “handling” funds necessary to trigger the bonding
requirement.

In addition, section 412 of ERISA and the regulations found in 29 C.F.R. Part 2580 contain
exemptions from ERISA’s bonding requirements. Section 412 specifically excludes any
fiduciary (or any director, officer, or employee of such fiduciary) that is a bank or insurance
company and which, among other criteria, is organized and doing business under state or federal
law, is subject to state or federal supervision or examination, and meets certain capitalization
requirements, ERISA § 412(a)(3). Section 412 also excludes from its requirements any entity
which is registered as a broker or a dealer under section 15(b) of the Securities Exchange Act of
1934, if the broker or dealer is subject to the fidelity bond requirements of a “self-regulatory
organization”. ERISA § 412(a)(2). Please confirm whether the expanded definition of fiduciary
affects the exemptions from bonding set forth in section 412 of ERISA and related regulations,



SFAA Comments

Notice of Proposed Rulemaking
Definition of the Term “Fiduciary”
RIN 1210-AB32

Page 3

We believe that the requested clarification will assist our members and their insureds in
determining how the proposed rulemaking will affect the section 412 bond requirements.
you for your consideration.

Thank :