ERISA vs Non-ERISA 403(b) Plans
By Anna Noble, QKA, CIP
What is the difference between ERISA and non-ERISA 403(b) plans?
To answer this question, let’s start with the types of employers eligible to offer a 403(b) plan. Public education institutions and certain governmental employers are eligible to offer 403(b) plans. This includes public schools, community colleges, state colleges and universities, Department of Education employees, and entities like district or county hospitals, or certain charter schools. These employers are automatically exempt from Title I of ERISA.
In addition, 501(c)(3) organizations are eligible to offer 403(b) plans. This includes tax-exempt hospitals and charitable, community service, and religious organizations. 403(b) plans sponsored by a 501(c)(3) organization (other than a religious organization) are generally subject to ERISA but may be exempt if they satisfy certain requirements.
What are the requirements that a 501(c)(3) organization must meet to be considered exempt from ERISA?
The exemption from ERISA for certain 403(b) plans is found under Department of Labor Regulation 2510.3-2, which includes a detailed list of the requirements. The exemption must satisfy a two-part test. The first part restricts the plan to contributions made as salary deferrals only. The second part restricts the level of employer involvement. In other words, for a non-exempt organization to be considered exempt from ERISA, the employer cannot make any contributions to the plan, nor can it make any discretionary decisions, such as distribution determinations or implementing automatic enrollment, for example.
Does ERISA apply to the 403(b) plans established by religious organizations?
Religious organizations, like churches and church-controlled organizations, in general, are not subject to Title I of ERISA. However, these types of organizations can choose to have their retirement plan covered by ERISA. To do so they would attach a statement electing that their plan be subject to ERISA to the Form 5500 they filed for the first plan year for which it applies. Most of these organizations do not elect to have their 403(b) plans covered by ERISA because of the increased administrative burden and responsibilities.
What are the implications of being subject to Title I of ERISA?
A 403(b) plan that is an ERISA plan is subject to meeting the requirements related to the following.
Form 5500 filing
Summary plan description
Summary annual report
Prohibited transaction rules
ERISA bonding
Retirement Equity Act
Fee disclosures
Fiduciary responsibilities
Nondiscrimination requirements
