When retirement planning one of the key decisions to make is whether to opt for a Non-ERISA or ERISA retirement plan. ERISA stands for Employee Retirement Income Security Act, which is a federal law that sets minimum standards for retirement plans in the private sector. Non-ERISA plans, on the other hand, are not governed by ERISA and are not subject to its regulations. In this blog post, we will explore the differences between Non-ERISA and ERISA retirement plans, who qualifies for each, and their respective benefits and disadvantages.
Do You Know These Surprising 401(k) Facts? Check Out Our Informative Infographic!
Non-ERISA vs ERISA Retirement Plan: An Overview
Non-ERISA Retirement Plans
Non-ERISA retirement plans are not subject to the regulations of ERISA; however, they must still comply with certain IRS regulations, such as contribution limits and distribution rules. These plans typically have fewer administrative requirements than ERISA plans. Non-ERISA retirement plans take many forms, including:
- Traditional and Roth IRAs
- SIMPLE IRAs
- SEP IRAs
- Individual 401(k)s
- 403(b)s
Note that non-ERISA retirement plans are available only to a select group of organizations. According to the U.S. Department of Labor, these plans can be established and maintained only by “governmental entities, churches for their employees, or plans which are maintained solely to comply with applicable workers compensation, unemployment, or disability laws.”
ERISA Retirement Plans
As the name suggests, an ERISA retirement plan must comply with a range of regulations as set out by the Employee Retirement Income Security Act, including minimum vesting requirements, fiduciary responsibilities, and reporting and disclosure requirements. These plans include:
- 401(k) plans
- Defined benefit plans
- Profit sharing plans
Unlike non-ERISA plans, an ERISA retirement plan is available to any private-sector company that offers a pension plan to its employees.
The Pros and Cons for Both
There are a couple of considerations that will need to be taken into account when choosing a plan type. On one hand, non-ERISA retirement plans don’t have as many administrative requirements; however, they offer fewer protections for plan participants and are only available to certain organizations. On the other hand, ERISA plans offer greater protection and are much more flexible regarding who can use them, but they have more administrative requirements and are more complex.
Choosing the Right Fit for Your Organization
Both types of plans have advantages and disadvantages, and the decision of which plan to choose should be based on individual needs and circumstances. Offering a range of plan types, our experts at California Pensions are well-equipped to guide you through the intricacies of both a non-ERISA and ERISA retirement plan, and what would work best for you. Ready to learn more about the differences between plan types so you can find the right fit for your organization? Download our comprehensive retirement plan comparison guide.
