ERISA and Non-ERISA Retirement Plans: What’s the Difference?

The retirement plan your organization offers is either ERISA or non-ERISA. And as a retirement plan fiduciary, it’s crucial that you know which category your plan is in. Why? Because your compliance responsibilities will differ greatly depending on the type of regulation your plan falls under.

What Is ERISA?

ERISA is a federal law that requires retirement plan sponsors to follow rules put into effect by the Employee Retirement Income Security Act of 1974 (ERISA).

ERISA plans add a high level of protection for plan participants by requiring plan sponsors to provide plan features and funding, reporting requirements, legal benefits, and fiduciary responsibilities.

ERISA Plans Must Comply with the Following Standards:

  • Fiduciaries must follow the terms of the Plan Document, making sure they’re consistent with ERISA guidelines.
  • Fiduciaries must provide participants with plan features and funding.
  • Plan employers cannot discriminate against employees.
  • Participants can file lawsuits for violations of fiduciary duty.
  • Fiduciaries must make sure the plan’s investments are diversified to minimize the risk of large losses.
  • Plan Administrator must provide participants with certain disclosures, such as the summary plan description, quarterly statement, and investment information.
  • Plans must be tax-deductible.

Although the requirements set in place by ERISA are considered best practices when setting up a retirement plan, not all retirement plan providers have to follow them.

That’s right—if your retirement plan falls under the non-ERISA category, you are exempt from ERISA regulations.

What Is Non-ERISA?

A non-ERISA plan is not subject to the Employee Retirement Income Security Act. Both ERISA and non-ERISA plans must follow the IRS regulations, but only ERISA plans need to follow the DOL regulations as well.

403(b) retirement plans have the option to either choose exemption from ERISA or elect ERISA coverage. For non-ERISA 403(b) plans, employers cannot contribute to the plan, and participation is voluntary.

Many employers of 403(b) plans choose the non-ERISA option to limit the complexity involved with sponsoring a qualified plan.

Benefits of a Non-ERISA Plan:

  • They are not required to file Form 5500.
  • They are not required to distribute a Summary Plan Description to participants.
  • If the plan contains over 100 participants, an annual audit is not required.
  • They are exempt from ERISA’s fiduciary guidelines, but still need to comply with state law and other standards.
  • They have fewer reporting and disclosure requirements.

Church Plans Fall Under the Category of Non-ERISA

Church plans are considered non-ERISA, so if you’re a church or church-related organization, you’ll want to make sure you establish a 403(b)(9) church plan. These plans provide certain tax advantages, such as Housing Allowance, are less expensive to administer, and require fewer form preparations and testing requirements.

How Are Non-ERISA 403(b)(9) Plans Different from Non-ERISA 403(b) Plans?

To reiterate, 403(b) retirement plans can either choose ERISA coverage or be exempt from ERISA. If a 403(b) plan chooses non-ERISA coverage, employers cannot contribute to the retirement plan, and it involves voluntary plan participation only.

But for a non-ERISA 403(b)(9) church plan, employers can contribute to the retirement plan and can decide who can participate in the plan.

This means that 403(b)(9) church plans may choose universal availability, allowing all employees to participate in the plan voluntarily. Or they may choose to impose certain requirements on employees—such as age or service requirements—before they can participate.

This is a huge benefit for church plans.

Now it’s your turn. What set of regulations does your retirement plan fall under?

To find out if your retirement plan falls under ERISA or non-ERISA regulations, check your organization’s Plan Document.

Need help setting up your 403(b) retirement plan or 403(b)(9) church plan? At TruthPoint Financial, we provide custom retirement solutions that are built on truth, transparency, and trust. This means that we will work with you to create a retirement plan that fits your needs—while always being upfront and honest. We help you understand a complicated subject—giving you the confidence you need to administer your new retirement plan.

Give us a call today so that we can set up a retirement plan for you and your employees.

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