What Are the Requirements to Receive Housing Allowance in Retirement?

In order to receive the Minister's Housing Allowance in retirement, you must be an ordained, licensed, or commissioned minister. 

Each year, you need to provide Envoy Financial with a Housing Allowance Authorization letter from your organization (on letterhead), signed by an authorized individual, and indicating the amount of Housing Allowance approved for the year. The letter must be dated by December 31st of the previous year, but the letter can be handed in later than that.

Whether the minister owns or rents a home, it is essential that his or her employing organization designate a housing allowance. Housing allowances must be:

• Adopted by the organization board or leadership

• Recorded in written form (such as minutes)

• Designated in advance of the calendar year

However, organizations that fail to designate an allowance in advance of a calendar year should do so as soon as possible in the new year. The allowance will operate prospectively.

Also, the minster must spend the allowance on eligible housing expenses during the year in which it was given. 

What You Need to Know About Housing Allowance

• Housing allowance cannot exceed the lesser of 100% of compensation or actual housing expenses. If you want to take more than your housing allowance limit, then you will be taxed on the extra amount.

• You can NOT take housing allowance if you roll your money over to an IRA or 401(k). You must keep your money in a 403(b). However, if you get a new job, then you can roll the money back into a 403(b) and have housing allowance eligibility.

• Housing allowance is excludable from gross income for federal and state income tax purposes but not for self-employment tax purposes. When a portion of compensation is received as housing allowance, federal and state taxes are directly reduced. SECA taxes are not directly reduced.

• Housing allowance is an exclusion from income permitted by Section 107 of the Internal Revenue Code. It is not a deduction. In other words, a housing allowance is money that is not reported as income. A housing allowance is never deducted because it is never reported as income in the first place. However, the minister is required to include any excess housing allowance as income on their Form 1040.

• Just to re-iterate, you can exclude an amount from federal and state income taxes that is the lowest of the following options:

  • A church-designated housing allowance

  • Housing expenses, such as mortgage, rent utilities, repairs, etc.

  • The fair rental value of the residence

The rest of the money is subject to federal income taxation.

To learn more about housing allowance, download our FREE Housing Allowance eBook.

* Envoy Financial does not offer legal or tax advice and encourages that you consult with a lawyer and/or professional tax advisor for personalized tax advice.

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More Housing Allowance Articles

What Happens to Your Housing Allowance If You Change Employers?

Housing Allowance After Retirement

Housing Allowance for Pastors

Is The Minister’s Housing Allowance Taxable?

What Are Housing Allowance Tax Advantages?

Special Tax Considerations for Pastors

Housing Allowance FAQs

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Minister's Housing Allowance Frequently Asked Questions

What is Housing Allowance for Ministers?

• A tax benefit for ordained, licensed, or commissioned ministers.

• A portion of income that is excluded from gross income, and thus is not subject to federal income tax.

• Gives them the ability to take a portion of money out of their 403b without the 20% mandatory withheld (its possible they may still owe state or SECA taxes).

• Also referred to as parsonage allowance or rental allowance.

Why does one get Housing Allowance?

The idea is that pastors use their house as part of their regular duties.

Who can take Housing Allowance?

A person who is an ordained, licensed, or commissioned minister.

Is there a limit to the amount of Housing Allowance?

Housing Allowance cannot exceed the lesser of 100% of compensation or actual housing expenses.

What if they want to take more than their Housing Allowance limit?

They can and can even do it on the Housing Allowance form.  But they will be taxed on the extra amount.

What is required to take a Housing Allowance distribution?

You will need to complete a Distribution Authorization Form with our Participant Services. Each year, you need to provide Envoy with a Housing Allowance Authorization letter from your organization, on letterhead, signed by an authorized individual, and indicating the amount of Housing Allowance approved for the year.

Is there a due date on the letter?

The letter must be dated by December 31st of the previous year, but the letter can be handed in later than that.  

Who approves it?    

It must be approved by the board at the church by December 31st of the previous year. 

Is there an age limit?    

Yes, the pastor must be 59 ½ or older to take it from their 403b and avoid the taxes.    

What is the fee?    

$25 for a one-time and $10 a time for a periodic    

What if they are still employed?

Technically they can take it, BUT:

• They still need to be 59 ½ or older,

• The plan needs to allow in-service distributions,

We need proof that they are not receiving their housing allowance in other ways (church is paying them the housing allowance).

Can they take Housing Allowance distribution if they rolled over to an IRA or 401(k)?

No, this is why it is important for pastors to keep their money in a 403(b) and not rollover into an IRA or 401(k).

However, if they get a new job, they can roll back into a 403(b), and then have housing allowance eligibility.

How will this look on their tax form?

The total amount taken from the 403b for the year will show up in the “Gross Amount” section, but the amount in the “Taxable Amount” section will be the gross amount minus the housing allowance. So the housing allowance will not show in the taxable amount. The form you will get is a 1099.

Is this money reported as income?

No. The employer does not report it as income. However, the pastor will include any excess housing allowance on their Form 1040.

What is Excess Housing Allowance?

Say in December of the previous year the pastor goes to his board and says that his housing allowance needs for next year will be $12,000. But at the end of the year he adds up his expenses and they were only $11,000. The extra $1,000 would need to be reported as income.

Can they set up a recurring/periodic payment?

Yes, but it if their housing allowance amount changes, the account holder is responsible for letting us know and will need to fill out a new form with a new Housing Allowance letter.

The account holder should also send us a new Housing Allowance letter each year, even if it hasn’t changed.

Can they stop a recurring/periodic payment?

They can call or email us to let us know to stop it.

Are there sample Housing Allowance letters

Yes, have them log on to the web portal and go to the Help/Resource Center > Distribution > Housing Allowance > Scroll down to the bottom.

Where can I look for more tax law info?

Section 107 of the Internal Revenue Code

Can it count towards RMD?

Yes, they can take out their housing allowance without the majority of taxes, and the IRS will see the distribution as an RMD. 

If their RMD is larger than their housing allowance they would need to take out more and it would be taxed like normal.

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More Housing Allowance Articles

What Happens to Your Housing Allowance If You Change Employers?

Housing Allowance After Retirement

Housing Allowance for Pastors

What Are The Requirements to Receive Housing Allowance?

Is The Minister’s Housing Allowance Taxable?

What Are Housing Allowance Tax Advantages?

Special Tax Considerations for Pastors

Housing Allowance: Special Taxation Considerations for Pastors

What is the Minister’s Housing Allowance?

The Minister’s Housing Allowance is one of the greatest tax benefits available to ordained, licensed, or commissioned ministers and comes from Section 107 of the Internal Revenue Code. The Minister’s Housing Allowance—sometimes called Parsonage Allowance—allows ministers to exclude some of their salary from certain taxes.

What Tax Benefits Can Pastor’s Receive?

When an ordained, licensed, or commissioned minister receives a portion of their compensation as housing allowance, that portion is excluded from gross income and therefore not subject to federal income tax. This can represent substantial tax savings for the minister. Also, when an ordained, licensed, or commissioned person retires, a portion of their 403(b)(9) retirement plan distribution can be received as housing allowance, providing additional tax savings in retirement.

Further, the SECA tax owed by those with ministerial status is reduced by the amount contributed to either a Traditional or Roth 403(b)(9) plan. Envoy has extensive experience with housing allowance for ministers and is committed to protecting and ensuring that your tax and retirement plan benefits are truly there for you during your active service years and beyond.

Click here for more Housing Allowance questions and answers.

How to Keep Your Housing Allowance When You Change Employers?

When an employee leaves an organization, it is common practice for their retirement account to be transferred out of the retirement plan. The account is usually rolled to another retirement plan or to an IRA.

It’s important to know that when 403(b)(9) accounts are rolled to a 401(k) or IRA, eligibility for the housing allowance provision is lost. 

How Envoy Protects the 403(b)(9) Money Source When Ministers Change Employers

When a minister changes employers to a non-ministerial entity, Envoy can easily transfer the 403(b)(9) account to a specially earmarked IRA that protects the money source. If the minister later joins another organization where he/she is eligible for housing allowance, the IRA account can be rolled into the new plan, retaining full housing allowance eligibility.

To learn more about housing allowance, visit our Housing Allowance FAQs or download our FREE Housing Allowance eBook.

* Envoy Financial does not offer legal or tax advice and encourages that you consult with a lawyer and/or professional tax advisor for personalized tax advice.

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Is Biblically Responsible Investing a New Concept?

This biblical investing movement is exploding within the Christian community. But why is Biblically Responsible Investing only now becoming popular?

Although the concept of monitoring investments for biblical principals may seem new, this investment approach has actually been around longer than one would assume. The term “Biblically Responsible Investing” is relatively new, but the act of monitoring the morality of funds has been around before the early 2000s. While the terms, Biblically Responsible Investing (BRI), ESG (Environmental, Social, and Governance), and Socially Responsible Investing (SRI) are new, the investment strategies that make up these terms are not new.

Why Are Christian Investors Only Now Beginning to Use Biblically Responsible Investing?

During the last two decades, the Christian investing movement has evolved substantially. But, Biblically Responsible Investing developed a slow start for a few reasons.

1. There was a lack of awareness.

   Socially Responsible Investing began with a Christian foundation and dates back 200 years ago to the practices of the Methodists. But it wasn’t until the 1960s that this practice took off and was known as a way for investors to avoid “sin stock.” As SRI evolved over the years, many Christian investors felt that not all the investments screenings aligned with their biblical beliefs. Because of this, Biblically Responsible Investing began to take shape. Over the last 15 years, BRI funds have grown from about 5 mutual funds to over 100 mutual funds. BRI continues to gain momentum and build credibility due to increased awareness.

2. There was a lack of understanding and demand.

   Most “average” investors are not aware that responsible investing exists. And let’s be honest—many investors don’t want to spend the time thinking about investment options. They know they should put money away for retirement, so they invest in their company’s 401(k) or in an individual retirement account. But unless an investor is educated on responsible investing, most will not know it’s an option. Thankfully, morally screened investment options are starting to become more prevalent in the retirement world. As Christians become more aware that this is an option, understanding and demand will also grow.

3. Expenses started out high and were underperforming.

   As previously stated, BRI has evolved over the years. Part of this evolution is cost and performance. While some BRI funds started out high and underperformed, this is no longer the case. In fact, a recent study by the Christian Investment Forum shows that faith-based equity funds out performed their peers by .8% and faith-based bond funds out performed their peers by .4% per year.

It is no longer the case that one must give up investment performance in order to follow their Christian values.

To learn more about Envoy Financial’s Biblically Responsible Funds, reach out to one of our licensed advisors.

The off Balance Sheet Moral Liability

The phone rings. I answer. The Board Chairman of XYZ Ministry introduces himself and says,

“We have a long-term staff member who is retiring in three months. They just approached our Senior Pastor and shared that they were physically and emotionally prepared for retirement, but that they had very little in the way of financial resources. They worked for the church for 30 years, but the church has never had a retirement plan. They want to know how we are going to help them fund their retirement. We don’t know what to do. Can you help us?”

Does the church or any other ministry organization have a moral liability to make sure their staff are taken care of in retirement?

If there is one, it does not show on the balance sheet and can’t be found in the Articles of Incorporation. Yet, does the liability exist? I’d suggest it is as real as the mortgage.

This situation is one that rears its uncomfortable head on a regular basis. The Board Chairman continued,

“We know we should have started a retirement plan years ago, but we just didn’t. The pastor never pushed for it and there were always budget limitations. I guess we just hoped that God would provide and then proceeded not to think about it or even start to address the issue”.

Our research shows that about 40% of all faith-based 501c3 organizations do not have any formal way they are addressing this issue of “a moral liability that exists and is growing but not reflected on the balance sheet.”  The issue is clear and growing more prevalent every day with churches, but they are not the only ones.

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The moral liability very silently sneaks up on some and over a long period of time.

A significant mission organization came to us a few years ago and asked us to help them determine the long term financial health of the field missionaries. The field missionary staff was aging and there was some concern among the headquarter’s leadership that resources might get tight. You see, they had a defined benefit plan in place that paid out $13 per month for every year of service. In case you have not done the math, $13 per month times 30 years of service amounts to a whopping $390 per month.

It took some time and lots of spreadsheet work, but we calculated the amount that was needed to provide a long-term missionary family with a $39,000 per year income, including social security, would require about 66% pf their operating budget. This was a big moral liability and the end of the ministry. You see, they had “assured” the staff that they would be “taken care of” in retirement.

“Being taken care of” seems to be the tacit assurance projected by many ministries when the issue is not addressed directly.

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Another organization had a meeting 20 years before with key staff and explored the need for a retirement plan. The leadership agreed that each would take care of their own and signed a document evidencing that decision. Now it’s 20 years later, and two of the five key staff members have approached the board.

“We know we said we would take care of our own retirement, but with “everything” that has happened in the course of daily ministry, we never did it. Now we have nothing and are coming to you to determine how you are going to help us.”

The off balance sheet moral liability rears its head again.

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One more example—there was a new ministry start up lead by a dynamic young pastor and his wife. God blessed their ministry and it was growing quickly. He was wise enough to approach his Board and suggest that they set up a retirement plan for himself and his wife. He was quite specific about the need and even the process. He was especially concerned about his wife if anything happened to him.

The Board, in its wisdom, determined that because of his young age and the growing need for resources, they would not set up a plan now. They did say—and they put it in the organization minutes—that if anything happened to him, they would provide for his wife for her lifetime. Yes, you are right, about 18 months later he died. The board has paid out in excess of $500,000 over the ensuing years to care for his wife. She is now in her late 70s and going strong. What was the opportunity cost for not taking wise stewardship action almost 40 years ago?

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The off balance sheet moral liability that exists within churches and parachurch organizations is huge.

Not only is the potential cost in dollars huge, but also the cost in diminished ministry. Good organizational stewardship takes many different paths. Paying attention to the long-term financial needs of your staff is certainly one of them.

Think of this, if 1/3 of your staff, upon retirement, were financially able to continue in ministry with you at no cost to the organization, how would the ministry change? How would His kingdom be impacted? And how much better would your “moral balance sheet” look?

We are convinced that ministry is for a lifetime and it must be funded in every season of life—by your parents when young, by your profession, your work, thereafter, and until you hit that last season, the 4th Quarter. Then, ministry needs funding by the savings and good stewardship that took place during the prior years. Putting a Future Funded Ministry plan in place need not be either expensive or administratively taxing.

Think about your balance sheet. Think about the people. Think about your stewardship responsibility—organizationally as well as personally. This is important. Don’t put it off.

What Is the Difference between Biblically Responsible Investing & Socially Responsible Investing?

It’s important to point out that Biblically Responsible Investing (BRI) and Socially Responsible Investing (SRI) have more in common than not. BRI and SRI both work to align an investor’s personal beliefs with their investment decisions and place importance on the values/beliefs of the companies their investments support.

But there are also some major differences between the two types of investing. The investment decision making process is guided by personal values and ethics, but their convictions, values, and priorities are often different.

What Is Socially Responsible Investing?

Socially Responsible Investing (SRI) is an investment strategy which seeks to consider financial return and a positive social benefit. Many SRI investors choose companies and funds that promote:

• Environmental Sustainability

• Social Justice/Diversity

• Peace

• Health

• Morality

What Is Biblically Responsible Investing?

Biblically-based SRI is called Biblically Responsible Investing (BRI) or Faith-Based Investing. Biblically Responsible Investing considers the investor’s financial return and aligns their investment decisions with their Christian values. Some of the issues that are typically avoided in BRI funds are:

• Anti-Christian lifestyles such as abortion and pornography

• Addictive behaviors such as alcohol, tobacco, and gambling

• Human rights issues such as religious persecution, terrorism, and political oppression

• Abusive practices toward God’s physical or human creations

Additionally, BRI invests in companies that positively impact their communities, the environment, and society.

The Difference between BRI and SRI

As you can see, both types of investing are focused on investing only in companies that align with the investor’s beliefs. The difference is the core of those beliefs. BRI bases its beliefs on biblical principles and desires to glorify God through investments that reflect those principles. SRI bases its beliefs on human-based ethics and morals. While some investment areas overlap, there are important areas, such as supporting abortion, where they do not.

To learn more about Envoy Financial’s Biblically Responsible Funds, reach out to one of our licensed advisors.

How Do You Match Your Values With Your Investing?

What is Biblically Responsible Investing?

As Christians, it’s important to take a stand on our beliefs. Many of us will not support certain organizations, politicians, or groups of people based on what they stand for. We may even back away from a friendship because we don’t agree with them.

But what about your money? Have you ever thought about what your investments are supporting? Today, many people are starting to pay more attention to the investments they support and are looking for ethical, responsible, and impactful investing. They want their investment strategy to align with their personal beliefs. This is called Biblically Responsible Investing or Faith-Based Investing. The secular term for it is Socially Responsible Investing.

Where do you begin when you’re looking to support investments that align with your beliefs?

Take a minute and answer these important questions:

• What do you stand for?

• What are you against?

• What matters to you?

• What do you want to promote?

The idea behind BRI is to create a portfolio with a purpose while making an impact. Your BRI funds will be screened for actions that go against biblical principles such as:

• Abortion

• Pornography

• Gambling

• Anti-family entertainment

• Alcohol

• Tabacco

Now you can decide what companies you want to stand behind. Do your research. Don’t invest in something if you don’t feel comfortable doing so. Today, more and more people are equally as concerned about standing behind a company that supports their beliefs as they are growing their nest egg.

At Envoy, our mission is to provide business excellence with a Kingdom Purpose. To learn more about our faith-based plans, contact us today!

How a Trip to Starbucks Can Improve Your Future

For many of us, spending $3-$5 a few days a week on good coffee doesn’t seem like a big expense.

However, it does add up over time. Saving $25 a week over 30 years is close to $40,000.

Don’t leave yet! We’re NOT suggesting that you give up your Starbucks.

If you don’t have a problem spending $20-$30 a week on a beverage, why not do the same for your future? Match your coffee spending with a retirement contribution. Again, calculate $25 a week over 30 years but now invested in a retirement account yielding 6% annually.

The total would be over $100,000!

Like little spending, little bits of saving can really add up over time. This year, try matching a retirement contribution with another area of spending that doesn’t seem like much. Could be coffee, movie rentals, or your cell phone bill. And, don’t forget the reason we save: to be financially free to do whatever or go wherever God calls us in our last quarter.

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Discover more about funding your future by going to http://www.futurefundedministry.com/.

How Does the Minister’s Housing Allowance Impact Your Retirement?

How does Housing Allowance Impact Your Retirement?

1. During your active ministry years, you pay significantly less SECA (The Self Employment Contribution Act) tax. Make sure you save the difference and set it aside in your retirement plan.

2. During your retirement years, you can take distributions equal to your housing allowance from your 403(b)(9) retirement plan without paying taxes. Functionally, this is an increase in compensation equal to your tax bracket—maybe as much as 25% at that point in time.

All voluntary contributions you make to your 403(b)(9) retirement plan reduce your SECA tax as well as your state and federal income tax.

What Are The Special Requirements for Housing Allowance After Retirement?

For Housing Allowance purposes, the IRS does not differentiate between an active and retired pastor. This allows retired ministers to request that some or all of their distributions from their retirement account be designated as housing allowance.

To take a distribution with special housing allowance tax treatment, you must be at least age 59 ½ and receive a Housing Allowance Authorization Letter from your church or governing organization.

Housing Allowance Distributions

Retired ministers are able to allocate all or a portion of their distributions as a housing allowance, which will result in lower-taxed or tax-free distributions. You can also request one distribution and have a portion of that distribution be treated as housing allowance and another portion as a regular distribution. You will receive one check or one electronic payment (ACH) for the total amount of the distribution, less any elected tax withholding.

You may designate a percentage to be withheld from any taxable portion of your distribution, but you will be responsible for any estimated tax and any penalties incurred as a result of that decision.

Making Changes to Your Special Housing Allowance Tax Treatment

You are responsible for submitting a new Distribution Authorization Form—Special Housing Allowance Tax Treatment to Envoy. If you do not submit a new Distribution Authorization Form—Special Housing Allowance Tax Treatment to Envoy, your original Housing Allowance amount as elected on the form will continue from one tax year to the next for recurring distributions.

Your distributions will continue until you stop the distribution or until your account balance is depleted. If you wish to stop distributions, please contact Envoy.

Can You Take a Housing Allowance if You have Rolled Over to an IRA or 401(k)?

Most ministers don’t know this, but the answer is no. This is why it is important for ministers to keep their money in a 403(b)(9) and not roll over into an IRA or 401(k). Retired ministers may want to consolidate various investments into a single account. But if you roll over your 403(b) account into an IRA or 401(k), you will no longer be able to claim housing allowance on those funds. It’s important for retired pastors to keep their funds in a 403(b) account so that they can take tax-reduced or tax-free distributions. This special benefit can help your retirement savings go up to 25% further. Which is a big deal!

For more information on Housing Allowance, go to the Minister’s Housing Allowance Frequently Asked Questions.

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To learn more about housing allowance, download our FREE Housing Allowance eBook.

* Envoy Financial does not offer legal or tax advice and encourages that you consult with a lawyer and/or professional tax advisor for personalized tax advice.

Are Church Retirement Plans Subject to ERISA?

What is ERISA?

The Employee Retirement Income Security Act of 1974 (ERISA) was enacted by Congress to protect the interests of employee benefit plan participants and their beneficiaries. ERISA is administered by the Department of Labor. ERISA establishes the minimum standards for retirement plan activities in private industry. It also provides for the rules on the federal income tax effects of transactions within retirement plans. 

The primary functions of ERISA include: 

• Requires the disclosure of financial and other information concerning the plan to participants and their beneficiaries; 

• Establishes standards of conduct for fiduciaries; and 

• Provides for appropriate remedies and access to the federal courts. 

What is Non-ERISA?

Non-ERISA plans are those 403(b) plans that involve voluntary plan participation only. In other words, the employer is not contributing. It’s important to note that Non-ERISA plans do not have the same regulations as ERISA plans, but they also do not have the same protection value as ERISA plans.

Is Your Retirement Plan ERISA or Non-ERISA?

It is important that you know if your organization’s retirement plan is an ERISA plan or a non-ERISA plan. Compliance differs greatly between the two plan types. Your organization’s governing Plan Document will clearly outline if the plan is an ERISA plan or a non-ERISA plan. 401(k) retirement plans are generally subject to ERISA.

Are Church Retirement Plans Subject to ERISA?

All Church Plans are 403(b)(9) plans and are automatically classified as Non-ERISA.

Non-ERISA plans need to conform to the 403(b) regulations as established by the Internal Revenue Service.

ERISA plans need to conform to the 403(b) or 401(k) regulations as established by the Internal Revenue Service and the ERISA regulations as established by the Department of Labor. 

Visit Understanding ERISA Vs. Non-ERISA Retirement Plans to learn more about ERISA vs. Non-ERISA plans.

What Are The Benefits Of Roth IRA And Roth 403(B) Plans?

Roth IRAs and 403(b)s

Roth IRAs are retirement plans that can be used by anyone while Roth 403(b)s are retirement plans that are offered by the employer.

While there are no income restrictions for those who can contribute to a Roth 403(b), a Roth IRA does have income requirements that determine who is able to open an account. It’s also important to note that the maximum contributions limits for Roth 403(b)s are much higher than for Roth IRAs.

Roth Benefits

The benefits of a Roth 403(b) and Roth IRA are that principle and earnings grow tax free so there will be no taxes taken at the time of distribution if you are at least 59 ½ and have had the Roth account for 5 years. But this does mean that they are funded with money from your paycheck after taxes have been taken out. You don’t get the tax-break upfront, but you also won’t have to pay taxes when you take money out.

If you do not have access to a Roth 403(b), then a Roth IRA is the next best choice. The Roth 403(b) allows you to contribute more, but contributing up to the IRA limit is better than not contributing at all. It’s also important to remember that many small employers, ministries, or faith-based organizations don’t have the money or experience to offer a retirement plan at all, let alone one with either a basic or matching contribution.

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Learn more about Church Retirement Plans.

Along with faith-based retirement plans, Envoy also offers faith-based IRAs.

Understanding ERISA Versus Non-ERISA Retirement Plans

What are ERISA Plans

ERISA organizations are subject to the rules put into effect by The Employee Retirement Income Security Act of 1974 (ERISA). This is a federal law that is intended to provide protection to participants in a retirement plan by identifying reporting requirements, fairness procedures, and fiduciary requirements that plan sponsors and other fiduciaries must follow when setting up a retirement plan. These requirements are considered best practice for all organizations; however, these requirements do not directly apply to Non-ERISA Plans.

The primary functions of ERISA include: 

• Requiring the disclosure of financial and other information concerning the plan to participants and their beneficiaries; 

• Establishing standards of conduct for fiduciaries;

• Employers can contribute to the plan and match their employees contributions; and

• Providing for appropriate remedies and access to the federal courts.

ERISA regulations are very informative and add a high protection value to either a 403(b) or 401(k) Plan. 401(k) retirement plans are generally subject to ERISA.

What are Non-ERISA Plans

Not all 403(b) retirement plans are subject to ERISA. 403(b) plans sponsored by church plans and governmental plans are exempt from ERISA, but may elect ERISA coverage if they want it. Such plans are commonly referred to as Non-ERISA plans. Non-ERISA 403(b) plans do not involve employer contributions, involve voluntary plan participation only, and do not need to follow the stipulations of the Act.

Some advantages of Non-ERISA plan include:

• A non-ERISA plan does not need to provide a Summary Plan Description (SPD) to participants.

• A non-ERISA plan is not subject to annual 5500 reporting.

• A non-ERISA plan with over 100 participants does not require an annual audit.

• A non-ERISA plan is not subject to the strict ERISA fiduciary standards, but it is subject to state law and other standards.

What is a Non-ERISA 403(b)(9) Plan

A Non-ERISA 403(b)(9) plan functions differently than a Non-ERISA 403(b) plan.
As stated above, in a Non-ERISA 403(b) plan, the employer does not contribute to the plan. This is not the case for a Non-ERISA 403(b)(9) plan. In a 403(b)(9) plan, not only can the employer contribute, but they can decide whether to use universal availability or to choose which employees are allowed to participate in the plan.

Non-ERISA 403(b)(9) Plan Eligibility

With universal availability, all employees are eligible to participate in the plan on a voluntary basis upon hire. There are no age or service requirements permitted with regards to these employee contributions. 

The employer also has flexibility in determining which employees are eligible. As an example, an employer may impose age and/or service requirements before an employee can participate in the plan.

Non-ERISA 403(b)(9) Church Plans

Another parameter around this distinction is that all Church Plans are considered Non-ERISA. Therefore, if your organization is a church, you want to ensure that you have a 403(b)(9) Church Plan, which provides certain tax advantages and flexibility. In order to qualify for a 403(b)(9) plan, your church must be 501c3 organization with a determination letter from the IRS indicating their status as a church.

In Conclusion:

ERISA plans need to conform to the 403(b) or 401(k) regulations as established by the Internal Revenue Service and the ERISA regulations as established by the Department of Labor. ERISA does not usually cover retirement plans for government and public education and religious organizations.

Non-ERISA plans need to conform to the 403(b) regulations as established by the Internal Revenue Service.

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Learn more about Church Retirement Plans or consult a professional service member for more information.