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403(b) Nonprofit Retirement Plans - What is ERISA?

What is ERISA and why should nonprofits worry about retirement plans?
 
If your nonprofit has a 403(b) retirement plan ERISA is something you should know and understand ERISA
 
As of January 1, 2009 the Department of Labor (DOL) raised the standards for employers with ERISA 403(b) plans. 401K plans have stringent policies and practices that the 403(b) plans used by many nonprofits have not been required to have. As of January 1, 2009 Title I ERISA rules will be delinquently applied and nonprofits are expected to comply with all of the guidelines, similar to:
 
  • Filing form 5500s annually (IRS form)
  • Annual financial audits on the retirement plan B
  • Maintaining Fiduciary responsibility for the rules outlined in Title I. There are pages and pages of information on Title I. Who can help you with this responsibility? A Registered Investment Advisor (RIA) registered with the SEC can take on a good deal of the fiduciary responsibility. The RIA must acknowledge their working status with your nonprofit under ERISA in a written document.  Lots to know, you have to do your homework or possibly have major non-compliance financial consequences, you can be held liable for your employees losses as a result of failing to perform your fiduciary responsibly as defined by the DOL.
 
What is ERISA? Who does it protect and why?
 
According to the United States Department of Labor, "The Employee Retirement Income Security Act of 1974, or ERISA, protects the assets of millions of Americans so that funds placed in retirement plans during their working lives will be there when they retire.
ERISA is a federal law that sets minimum standards for pension plans in private industry. For example, if an employer maintains a pension plan, ERISA specifies when an employee must be allowed to become a participant, how long they have to work before they have a non-forfeitable interest in their pension, how long a participant can be away from their job before it might affect their benefit, and whether their spouse has a right to part of their pension in the event of their death. Most of the provisions of ERISA are effective for plan years beginning on or after January 1, 1975.
 
ERISA does not require any employer to establish a pension plan. It only requires that those who establish plans must meet certain minimum standards. The law generally does not specify how much money a participant must be paid as a benefit.
 
ERISA does the following:
  • Requires plans to provide participants with information about the plan including important information about plan features and funding. The plan must furnish some information regularly and automatically. Some is available free of charge, some is not.
  • Sets minimum standards for participation, vesting, benefit accrual and funding. The law defines how long a person may be required to work before becoming eligible to participate in a plan, to accumulate benefits, and to have a non-forfeitable right to those benefits. The law also establishes detailed funding rules that require plan sponsors to provide adequate funding for your plan.
  • Requires accountability of plan fiduciaries. ERISA generally defines a fiduciary as anyone who exercises discretionary authority or control over a plan's management or assets, including anyone who provides investment advice to the plan. Fiduciaries who do not follow the principles of conduct may be held responsible for restoring losses to the plan.
  • Gives participants the right to sue for benefits and breaches of fiduciary duty.
  • Guarantees payment of certain benefits if a defined plan is terminated, through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation." written by the United States Department of Labor - http://www.dol.gov/ebsa/faqs/faq_compliance_pension.html
 

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