Tax liability for non-ERISA plans?

[Guest toddl]

My current employer (a nonprofit) offers me 7% of my salary to be allocated to an employee-directed non-ERISA retirement plan. My employer also withholds taxes from this amount, so that the actual amount invested is less than 7%.

My previous employer (a university) had an ERISA 403 b plan in which no taxes where withheld, but I could choose only from the investment options that the employer offered. This was not bad as there were many options to choose from.

Is there anyway that my current employer can legally not withhold taxes from my existing plan? Or would it be necessary to switch to an ERISA plan? Are ERISA plans more "expensive" for an employer than a non-ERISA plan?

I hope to approach our finance director about this, but wanted some guidance or information first.

Thank you.

[QDROphile]

Although there is a correlation of sorts, the tax attributes of a retirement plan do not depend on ERISA. For example, there are 403(b) plans that are ERISA plans and 403(b) plans that are not. Both have essentially the same tax characteristics.

If you are describing it correctly, it does seem a bit odd that your retirement plan is funded on an after tax basis. Lots of questions arise from your description, including why the plan is exempt from ERISA.

[mbozek]

If the employer is paying you an additional 7% why isnt this being contributed by salary reduction to a non ERISA plan so that only FICA tax is due? An ERISA 403(b) plan in which the contributions are made by the employer (and no FICA tax is witheld) does not result in additonal expenses other than filing of a 5500 form which does not require much effort and a written plan document which the vendor will provide. Your finance director needs to retain someone who can explain a 403(b) plan in which the employee is not paying tax on the contribution. Note: a 403(b) plan can only be established by an employer that is tax exempt under IRC 501©(3) or a public school. Other non profit employers can establish a 401(k) plan.