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Tip of the Week: Statutory Exemptions from ERISA

ERISA contains specific exemptions for benefit plans of certain types of employers. For example, plans sponsored by governmental entities as defined in ERISA Section 3(32) such as public schools, community colleges and state universities or churches as defined in ERISA Section 3(33) are not subject to ERISA.

Governmental employers may NOT elect to be covered by ERISA as the statute expressly excludes them from coverage. However, the statute permits churches to elect to be covered by ERISA, so it should not always be assumed that churches are not subject to ERISA.

However, the default under the statute for religious organizations sponsoring plans that meet the definition of “church plan” under ERISA Section 3(33) is that the plan will be exempt from ERISA. When working with religious organizations, coverage under ERISA should always be addressed before retirement benefit or deferred compensation programs are installed. If a religious organization has not made an irrevocable affirmative election to be covered, it will be exempt from the ERISA requirements that follow.

Because of the statutory exemptions, any 403(b) or 457 plan sponsored by governmental organizations or church organizations will be exempt from ERISA, unless the church plan elects to become subject to ERISA.

Therefore, the 403(b) and deferred compensation programs of public school districts, public colleges, public universities, and community colleges and churches, synagogues, mosques or similar houses of worship as well as religious organizations as described in Section 414(e) will not be required to meet the additional requirements of ERISA.

Editor’s Note: This is an occasional feature in the NTSA Advisor. It is drawn from The Source, a book that covers technical, compliance, administrative and marketing aspects of the 403(b) and 457(b) markets. More information about The Source is available here.