By Jenny Kiffmeyer, J.D – The Retirement Learning Center
Are Governmental Plans Exempt from ERISA?
ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.
A recent call with an advisor in Wisconsin is representative of a common question on the Employee Retirement Income Security Act of 1974 (ERISA) and retirement plans maintained by governmental entities. The advisor asked: “I have a colleague that says governmental retirement plans are exempt from ERISA and one that says they are not. Can you settle the argument? Are retirement plans maintained by governmental entities exempt from ERISA?”
Highlights of the Discussion
- Yes and no; both answers are partially correct.
- ERISA consists of five sections or “Titles:”
- Title I: Protection of Employee Benefit Rights
- Title II: Amendments to the Internal Revenue Code Relating to Retirement Plans
- Title III: Jurisdiction, Administration, Enforcement; Joint Pension Task Force, Etc. and
- Title IV: Plan Termination Insurance
- Generally, governmental retirement plans are fully exempt from Titles I and IV of ERISA. Those titles cover fiduciary duties, reporting and disclosure requirements, and termination insurance from the Pension Benefit Guaranty Corporation [ERISA Secs. 4(b)(1) and 4021(b)(2)].
- A few of the provisions of Title II of ERISA apply to governmental plans. Title II relates to the portion of ERISA that amended the Internal Revenue Code and includes certain plan qualification requirements like limits on plan contributions.
- Governmental plans are subject to Title III of ERISA, which contains procedures for co-coordinating enforcement efforts between the Department of Labor and Treasury Department.
- While governmental plans are exempt from the federal fiduciary requirements of Title I of ERISA, they are subject to any fiduciary requirements imposed by applicable state laws. For example, California Government Code Section 53213.5 applies fiduciary standards and responsibilities to plans of governmental entities that essentially mirror those fiduciary standards and responsibilities in Title I of ERISA. Similarly, Florida imposes a federal-like fiduciary standard on plan officials under Florida Statute 112.656.
- Other state statutes have fiduciary provisions that may be different than federal fiduciary rules. A sponsor of a governmental plan must be familiar with the fiduciary standards of its state, as well as other state laws that may affect the operation of its plan.
As a rule, retirement plans of governmental employers are exempt from the federal fiduciary requirements imposed under Title I of ERISA, as well as the plan termination insurance requirements under Title IV. However, it is important for plan sponsors and others who may have discretionary authority over governmental plans to consider any fiduciary requirements and other legal requirements under applicable state law.