Tribal council retirement plans are a crucial aspect of the compensation and benefits package that tribal governments offer their employees. These retirement plans help ensure that employees are financially confident after they retire and provide a sense of stability to both the employee and the tribe.
Tribal governments, as sovereign nations, have a unique relationship with the federal government, which has implications for the types of retirement plans they can offer their employees.
In this blog, we will discuss the importance of tribal council retirement plans, the impact of the Pension Protection Act of 2006 on these plans, and how tribal governments navigate federal regulations to provide their employees with comprehensive retirement benefits. Let’s dive in!
Tribal Retirement Plans vs Non-tribal Retirement Plans: What is the Difference?
When it comes to retirement plans, tribal governments have unique considerations and challenges that differ from those faced by non-tribal employers. Tribal governments, as sovereign nations, have a special relationship with the federal government, which impacts the types of retirement plans they can offer their employees.
Let’s discuss some of these differences between tribal and non-tribal retirement plans and how these differences can prove advantageous to providers.
Compliance with the Employee Retirement Income Security Act (ERISA)
One notable difference is that tribal governments are not required to comply with the Employee Retirement Income Security Act (ERISA), a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans. Instead, they may choose to offer their employees non-ERISA plans that are subject to less stringent regulations.
However, the tribal retirement plans must be government plans in order to not be subject to the requirements of ERISA.
According to the IRS, “A tribe may be eligible for a 401(k) or 403(b) governmental plan…. Whether the plan qualifies will depend on the facts and circumstances at hand. If a plan does not qualify as a governmental plan, then it would be presumably non-governmental and subject to the requirements of ERISA.”
What Does the Term “Government Plan” Mean Exactly?
The IRS states, “Prior to 2006, a ‘governmental plan,’ as defined in IRC Section 414(d), included a plan established and maintained for its employees by the U.S. Government, a State government or political subdivision thereof, or by any agency or instrumentality of the foregoing but did not include plans established and maintained by an Indian tribe or a tribal subdivision.
As amended by the Pension Protection Act of 2006 (PPA), the definition of ‘governmental plan’ in IRC Section 414(d) now includes a plan established and maintained by an Indian tribal government, a tribal subdivision, or an agency or instrumentality of either, and all of the participants of which are employees of such entity substantially all of whose services are in the performance of essential governmental functions but not in the performance of commercial activities (whether or not an essential government function).”
How Can Non-ERISA Plans be Advantageous for Employers?
Non-ERISA plans can be advantageous for employers because they are subject to fewer regulatory requirements than ERISA plans. This can lead to lower administrative costs and greater flexibility in plan design.
Non-ERISA plans can also provide greater autonomy for the employer in terms of plan management and decision-making. Additionally, non-ERISA plans may be exempt from certain taxes and fees that are associated with ERISA plans.
Qualifying Governmental Plans for Indian Tribal Governments
Tribes may be eligible for a 401(k) or 403(b) governmental plan, subject to certain requirements and limitations. To qualify as a governmental plan, the plan must meet specific criteria outlined in Section 414(d) of the Internal Revenue Code.
A tribe may decide to maintain two separate plans.
Separate Retirement Plans
Another difference is that tribal governments may offer separate retirement plans for their commercial and government employees, while non-tribal employers are typically required to offer the same retirement plan to all eligible employees. This is due to the fact that tribal commercial entities are often separate from the government and have their own unique legal considerations.
However, it’s important to note that tribal governments are still subject to federal regulations, such as the Pension Protection Act of 2006, which has implications for the types of retirement plans they can offer their employees. Additionally, tribal governments are encouraged to file Form 5500 for their retirement plans to ensure compliance and avoid potential penalties.
One unique aspect of tribal council retirement plans is the defined benefit (DB) plan for elected officials. Elected tribal council members do not earn Social Security benefits during their term of service, and the DB plan was created to address this issue. Tribes want to ensure that their plans are well-funded and promote the social and financial well-being of their members.
Challenges and Variations
Tribes face challenges in complying with IRS regulations, including the complexity of tribal governance and the unique functions of tribal governments. Each tribe does business differently, with some doing business by consensus while others delegate decisions to a select few members. To address these challenges, tribes need a team that understands federal law, state law, and tribal law.
Understanding tribal council retirement plans is essential for both tribal governments and employees. The Pension Protection Act of 2006 and ERISA regulations have a significant impact on the design and administration of tribal employee benefit plans.
Tribal governments must balance compliance with federal law with their inherent sovereignty to govern themselves and their affairs. Providing retirement benefits to tribal council members and other government employees presents unique challenges, but tribes can overcome these challenges with the right team and expertise.
Learn More About Our Tribal Services
At RWM Financial Group, we are committed to upholding independence, excellence, and supporting tribal sovereignty to help achieve your tribe’s financial goals. Our extensive range of services include but are not limited to:
- Tribal Council Retirement Plans, 401(k) Investment Management (both ERISA and Non-ERISA)
- Children’s Trust Investment Management
- Fiduciary Investment Management, Discretionary and Non-Discretionary Investment Management
- Investment Monitoring
- And, Detailed Reporting
We also provide services such as Investment Committee Education, Tribal Member Financial Education, Third-Party Administrator and Provider Liaison, 401(k) Provider Request for Proposal, Participant Education, and Financial Wellness Program, Onsite Meetings, and Retirement Plan Enrollment Assistance. Our team is dedicated to providing exceptional service and building long-lasting relationships with our clients.
The purpose of RWM Financial Group is to promote plan success via our knowledgeable team and a robust set of tools. By working with us, you can help put your employees on the path working toward a confident retirement. Learn more about our services, here.
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.