What the heck is ERISA? Why should we care? And does it apply to everyone?
Transcript: Hi this is John Park with PGI Self-Directed, and contributor to BawldGuy Talking. Today we’re going to be talking about a term you may have never heard of, ERISA. What is it? And why doesn’t it apply to an individual 401K plan? You see, oftentimes I get calls from even attorneys and CPAs, believing that their clients, if they’re establishing a 401K plan, has to have ERISA protection. However, ERISA is intended to protect retirement assets and to eliminate fiduciary misuse. In a nutshell, ERISA requires plans to provide information to participants; to set minimum standards for participation, vesting, etc.; requires accountability of fiduciaries, so they’re not misusing the funds of the plan. It gives the right to an employee to sue if they feel their ERISA rights have been violated, and it protects the plan from mismanagement of the fiduciaries. Now you may be saying, “That sounds great. Why wouldn’t I want that protection within my individual 401K plan?” Because it doesn’t apply to you. In order for it to apply to you, you have to have employees. Self-directed or not, it doesn’t matter. If you have an individual 401K plan, here’s how you want to think about it. You can’t discriminate against yourself, or commit fraud against yourself and your plan. It’s your plan. So typically, who does ERISA not apply to? If you are the 100% owner of a business with no common law employees, ERISA will not apply to you. Even if you and your spouse are 100% owners of a business, you and your spouse do not fall under ERISA. If you’re part of a partnership with partners and/or the spouses of partners, a 401K plan can be established without having to fall under ERISA. Folks, if you don’t have to follow under ERISA, you don’t want to. You’re still going to have strong asset protection of your 401K funds being within the plan. But ERISA, if you only remember one other thing that I talked about, it’s intended to protect participants. If you don’t have any participants other than yourself, and those other situations I mentioned, spouses, partners, etc., ERISA just doesn’t apply to you. So again this is John Park, PGI Self-Directed. I hope this information was useful for you. I think it’s a very important thing for people to understand how ERISA works and why it doesn’t apply to an individual plan, and hopefully it was of benefit to you. So, John Park, PGI Self-Directed, contributor to BawldGuy Talking. Have a great day.