Payroll Deduction IRA Programs

Summary

Use this practice note when evaluating and advising an employer on rollout of a payroll deduction individual retirement account program (payroll deduction IRA) to employees. The payroll deduction IRA is a simple method by which an employer can provide a retirement savings mechanism for its employees without establishing a plan. Employees of an employer simply establish an IRA with a financial institution and authorize the employer to fund their IRA contributions by payroll deduction. Without proper planning, employers who facilitate the payroll deduction IRA can inadvertently become plan sponsors subjecting the employer and the plan to Employee Retirement Income Security Act (ERISA) compliance requirements, including the fiduciary requirements of Title I of ERISA. This practice note discusses Department of Labor regulations and guidelines that the employer can follow to avoid ERISA’s application to the arrangement.