Understanding ERISA and IRS Guidelines for Retirement Plans in 2024


Not all retirement plans are created equal. Let’s take a deep dive into ERISA and IRS guidelines to ensure your retirement strategy is both compliant and efficient.

ERISA Guidelines Explained

The Employee Retirement Income Security Act (ERISA) of 1974 sets the standard for qualified plans in private industries. Understanding ERISA’s stipulations is crucial for both employers and employees to ensure retirement plans are secure and operate fairly. This federal law protects the interests of plan participants by enforcing rigorous standards on plan disclosures, fiduciary responsibilities, and dispute procedures.

  • Disclosure Requirements: ERISA demands transparency through the requirement of a summary plan description (SPD) that informs participants about the most important aspects of their plans, delivered in a timely and accessible manner
  • Fiduciary Responsibility: Under ERISA, fiduciaries must avoid conflicts of interest, ensure that the plan’s expenses are reasonable, and act prudently & solely in the interest of the plan’s participants.
  • Plan Participant Rights: ERISA provides participants, provisions that protect an employee’s plan assets from being misused by the plan or diverted to inappropriate parties.
  • Funding Rules: The act also sets minimum standards for participation, vesting, benefit accrual, and funding.

IRS Rules Governing Retirement Plans

The Internal Revenue Service (IRS) plays a pivotal role in regulating retirement plans through its tax codes. These guidelines are essential for defining the taxation of contributions, investments, and distributions from retirement plans. Specifically, the IRS sets forth comprehensive rules that dictate how retirement plans, including Cash Balance Plans and Profit Sharing Plans, must be structured and operated to qualify for tax benefits.

  • Contribution Limits: The IRS annually updates contribution limits for retirement plans. These limits are critical for ensuring that plans do not exceed tax advantage thresholds, thus maintaining their qualified status under the tax code.
  • Tax Benefits: Contributions made to qualified plans are typically tax-deductible for employers and tax-deferred for employees, depending on individual circumstances. This means that employees do not pay income tax on the money they contribute (or the investment returns) until they withdraw the funds, usually at retirement when they may be in a lower tax bracket.
  • Non-Discrimination Tests: To ensure that retirement plans do not disproportionately benefit highly compensated employees at the expense of lower-paid workers, the IRS requires routine non-discrimination testing. Plans that fail these tests may lose their tax-qualified status, leading to tax consequences for both employers and employees.
  • Required Minimum Distributions (RMDs): The IRS mandates that participants begin taking distributions from their retirement plans at age 72 (recently updated from 70½).
  • Loans and Hardship Withdrawals: IRS rules specify under what conditions participants can take loans or make early withdrawals from their retirement accounts under circumstances of financial hardship. These distributions usually come with tax implications and, in some cases, penalties.
  • Reporting and Disclosure: The IRS requires that retirement plans file an annual return/report (Form 5500 Series) detailing the financial condition, investments, and operations of the plan. This transparency helps the IRS ensure that plans are being operated correctly and are financially sound.

Compliance Requirements for Retirement Plans

Maintaining compliance with both ERISA and IRS regulations is crucial for the operation of any qualified retirement plan. Compliance ensures that plans are not only tax-effective but also adhere to the legal standards that protect the interests of all participants. Navigating these requirements involves a comprehensive understanding of the ongoing administrative responsibilities.

  • Participant Notices: Plan administrators must provide participants with regular updates about their benefits and rights. This includes summary plan descriptions (SPD), summary annual reports (SAR), and any changes to the plan. Notices regarding automatic enrollment, investment options, and fees are also required to ensure that participants are fully informed about their investments.
  • Plan Amendments: As laws and regulations change, retirement plans may need to be amended to remain compliant. This requires keeping abreast of legislative and regulatory updates and understanding how they impact plan provisions. Timely amendments are crucial to avoid penalties and ensure that the plan continues to operate in accordance with the latest tax laws and ERISA requirements.

Recent Regulatory Changes and Their Implications

The landscape of retirement planning is continually evolving, with recent legislative and regulatory changes having significant implications for both plan sponsors and participants. Keeping abreast of these changes is crucial for maintaining compliance and optimizing plan benefits.

  • SECURE Act: Introduced several critical changes, including increasing the required minimum distribution age from 70½ to 72, allowing part-time workers to participate in 401(k) plans, and permitting annuity options in retirement plans.
  • IRS Updates: The IRS routinely updates life expectancy tables that affect required minimum distributions (RMDs), to reflect changes in mortality rates. These updates can alter the amount that retirees must withdraw annually, impacting their tax liabilities and financial planning strategies.


Understanding the complex legal framework governing retirement plans is essential for maximizing your benefits while ensuring compliance. Whether you’re a plan sponsor or a participant, staying informed about ERISA and IRS guidelines is crucial in navigating the retirement planning landscape. That is where a financial services partner like Basilic Financial can help add value to your business.

Are you confident that your retirement plan is in full compliance with current regulations? Don’t leave your retirement plan’s compliance to chance. Contact Basilic Financial today to ensure your retirement strategy is both effective and compliant.


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