Understanding ERISA Versus Non-ERISA Retirement Plans


What are ERISA Plans

ERISA organizations are subject to the rules put into effect by The Employee Retirement Income Security Act of 1974 (ERISA). This is a federal law that is intended to provide protection to participants in a retirement plan by identifying reporting requirements, fairness procedures, and fiduciary requirements that plan sponsors and other fiduciaries must follow when setting up a retirement plan. These requirements are considered best practice for all organizations; however, these requirements do not directly apply to Non-ERISA Plans.

The primary functions of ERISA include: 

  • Requiring the disclosure of financial and other information concerning the plan to participants and their beneficiaries; 

  • Establishing standards of conduct for fiduciaries;

  • Employers can contribute to the plan and match their employees contributions; and

  • Providing for appropriate remedies and access to the federal courts.

ERISA regulations are very informative and add a high protection value to either a 403(b) or 401(k) Plan. 401(k) retirement plans are generally subject to ERISA.

What are Non-ERISA Plans

Not all 403(b) retirement plans are subject to ERISA. 403(b) plans sponsored by church plans and governmental plans are exempt from ERISA, but may elect ERISA coverage if they want it. Such plans are commonly referred to as Non-ERISA plans. Non-ERISA 403(b) plans do not involve employer contributions, involve voluntary plan participation only, and do not need to follow the stipulations of the Act.

Some advantages of Non-ERISA plan include:

  • A non-ERISA plan does not need to provide a Summary Plan Description (SPD) to participants.

  • A non-ERISA plan is not subject to annual 5500 reporting.

  • A non-ERISA plan with over 100 participants does not require an annual audit.

  • A non-ERISA plan is not subject to the strict ERISA fiduciary standards, but it is subject to state law and other standards.

What is a Non-ERISA 403(b)(9) Plan

A Non-ERISA 403(b)(9) plan functions differently than a Non-ERISA 403(b) plan.
As stated above, in a Non-ERISA 403(b) plan, the employer does not contribute to the plan. This is not the case for a Non-ERISA 403(b)(9) plan. In a 403(b)(9) plan, not only can the employer contribute, but they can decide whether to use universal availability or to choose which employees are allowed to participate in the plan.

Non-ERISA 403(b)(9) Plan Eligibility

With universal availability, all employees are eligible to participate in the plan on a voluntary basis upon hire. There are no age or service requirements permitted with regards to these employee contributions. 

The employer also has flexibility in determining which employees are eligible. As an example, an employer may impose age and/or service requirements before an employee can participate in the plan.

Non-ERISA 403(b)(9) Church Plans

Another parameter around this distinction is that all Church Plans are considered Non-ERISA. Therefore, if your organization is a church, you want to ensure that you have a 403(b)(9) Church Plan, which provides certain tax advantages and flexibility. In order to qualify for a 403(b)(9) plan, your church must be 501c3 organization with a determination letter from the IRS indicating their status as a church.

In Conclusion:

ERISA plans need to conform to the 403(b) or 401(k) regulations as established by the Internal Revenue Service and the ERISA regulations as established by the Department of Labor. ERISA does not usually cover retirement plans for government and public education and religious organizations.

Non-ERISA plans need to conform to the 403(b) regulations as established by the Internal Revenue Service.

Learn more about Church Retirement Plans or consult a professional service member for more information.

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