The New Commonsense Guide to Your 401(k): Rebuilding Your Portfolio From The Bottom up

Chapter 82. ERISA or No?

THROUGHOUT THIS BOOK, we've discussed various pieces of pension legislation that affect pensions paid to America's workers. The granddaddy of them is the Employee Retirement Income Security Act of 1974 (ERISA). ERISA requires that employers be prudent and vigilant in selecting, maintaining and reviewing retirement plan investments. All 401(k) plans are governed by ERISA. But employers who sponsor 403(b) plans have a choice about whether or not to comply with ERISA. About half do so. Employees who participate in non-ERISA plans must do more work to make certain they choose a good plan and make good investment choices.

An employer that sponsors an ERISA plan chooses a vendor for a 403(b) plan in much the same way as 401(k) plan sponsors do. Mercer's Ethan E. Kra refers to the 403(b) ERISA plan as a plan with a capital P because the employer takes charge of the plan. Even government employers, who are exempt from ERISA, can put together this type of plan. The employer provides educational materials like those offered in a 401(k) plan as well as a summary plan description. The employer may provide a matching contribution. And the employer must file form 5500, which is an annual form that must be sent to the Internal Revenue Service (IRS) for every qualified plan.

Many other employers leave it entirely up to employees to decide whether or how they will invest their 403(b) money. These employers simply agree to withhold the money from your salary and to send it ...