What are the key differences between ERISA and non-ERISA benefits plans?

1 ERISA benefits plans

ERISA benefits plans, such as 401(k) plans, pension plans, health insurance plans, disability insurance plans, and life insurance plans, are sponsored by employers or a group of employers and provide retirement income or health and welfare benefits to their employees. These plans must adhere to certain requirements, including reporting and disclosure to the Department of Labor (DOL), the Internal Revenue Service (IRS), and plan participants and beneficiaries; fiduciary responsibility managed by people or entities that have authority or control over the plan's assets or administration; participation and vesting for eligible employees; funding and benefit security; and enforcement and remedies by the DOL, the IRS, the Pension Benefit Guaranty Corporation (PBGC), as well as complaints or lawsuits by plan participants and beneficiaries.

2 Non-ERISA benefits plans

Non-ERISA benefits plans are those that are not sponsored by an employer or a group of employers, or that are exempt from ERISA for various reasons. Examples of these plans include governmental plans such as Social Security, Medicare, Medicaid, and public employee retirement systems; church plans such as clergy pension plans and church-sponsored health plans; payroll practices like sick pay, vacation pay, overtime pay, and severance pay; voluntary plans like union-sponsored pension plans and professional association-sponsored health plans; and individual policies like individual retirement accounts (IRAs), health savings accounts (HSAs), and personal life insurance policies. These non-ERISA benefits may have to comply with other federal or state laws that regulate their specific type of plan or policy. For example, governmental plans must follow the Internal Revenue Code (IRC) rules for tax-qualified retirement plans, church plans must follow the IRC rules for tax-exempt organizations, and individual policies must follow the state insurance laws and regulations.

3 The advantages and disadvantages of ERISA and non-ERISA benefits plans

Both ERISA and non-ERISA benefits plans have their own advantages and disadvantages for employers and employees. ERISA benefits plans offer more uniformity and consistency across different states and jurisdictions, as well as more protection and recourse for plan participants and beneficiaries. However, they also impose more compliance costs and risks for plan sponsors and fiduciaries, as well as more litigation exposure and liability. On the other hand, non-ERISA benefits plans offer more flexibility and autonomy for plan sponsors and fiduciaries, as well as less compliance costs and risks. But they also provide less uniformity and consistency across different states, as well as less protection and recourse for plan participants and beneficiaries.

4 How to determine if your benefits plan is ERISA or non-ERISA

Determining whether your benefits plan is ERISA or non-ERISA depends on the type of plan or policy, the level of employer involvement, and the safe harbor rules. Certain types of plans, such as governmental plans, church plans, payroll practices, and voluntary plans, are inherently non-ERISA. Other types of plans may be ERISA or non-ERISA depending on employer involvement. The DOL has issued safe harbor rules that exempt certain types of plans or policies from ERISA if they meet certain criteria. If you are unsure whether your benefits plan is ERISA or non-ERISA, it is best to consult a qualified employee benefits attorney or consultant who can help you analyze your specific situation and ensure compliance with applicable laws and regulations.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?