INSIGHT

ERISA for Nonprofits: Your Top Questions Answered  

Shannon Winter • March 11, 2026

Industries: Nonprofit

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Nonprofit organizations face unique challenges when managing employee benefit plans. The regulations surrounding ERISA can feel overwhelming, especially for organizations focused primarily on their mission rather than complex compliance requirements. Many nonprofit leaders find themselves asking the same questions about how ERISA for nonprofits applies and what steps they need to take to stay compliant. 

This article answers the most common questions nonprofit organizations ask about ERISA and employee benefit plans.  

Are Nonprofits Subject to ERISA? 

ERISA applies to most nonprofit organizations that offer retirement or welfare benefit plans to their employees. However, some important exceptions exist. If your nonprofit is a governmental entity or a church, your plans can apply to be exempt from ERISA requirements. The law also doesn’t cover plans maintained solely for workers’ compensation, unemployment, or disability compliance.  

Your organization needs to determine its status early. This decision affects everything from how you structure your plans to what annual financial reporting you must complete. 

What Makes Someone a Fiduciary Under ERISA? 

A fiduciary is anyone who exercises discretion over your plan’s management, assets, or administration. This definition is broader than many nonprofit leaders realize. Your board members, plan administrators, and investment committee members all likely qualify as fiduciaries. 

Fiduciaries must act solely in participants’ best interests. They must carry out their duties with care and prudence, follow the plan documents, and diversify investments appropriately. These responsibilities carry legal weight, and breaches can result in personal liability. 

How Can Nonprofits Avoid Fiduciary Breaches? 

Document every decision you make about your plan. Keep detailed records of how you selected service providers, evaluated investment options, and monitored plan performance. This documentation protects you if questions arise later. 

You should also ensure that anyone handling plan funds has appropriate bonding coverage. Develop internal controls that create checks and balances in your plan administration. Review these controls regularly and update them as your organization grows or changes. 

What Internal Controls Should Nonprofits Establish? 

Strong internal controls protect your organization and your employees. Start by reconciling total plan investments with total participant investments regularly. Verify that contributions reported by your third-party administrator match the amounts you actually contributed. 

Review hardship withdrawals carefully to confirm they meet plan restrictions. Check that employee lists sent to administrators contain accurate information. Monitor administrative expenses and require proper approval before payment. Compare your plan’s investment returns against published benchmarks to spot potential problems early. 

Missing or weak controls can lead to serious problems. Contributions might get allocated incorrectly, ineligible individuals could receive benefits, or fictitious participants might appear in your system. 

What Are Prohibited Transactions and How Do You Avoid Them? 

ERISA prohibits certain transactions between your plan and parties in interest. These parties include plan fiduciaries, service providers, your organization as the employer, and relatives of these individuals. 

The law prohibits sales, exchanges, or leases of property between the plan and these parties. It also bars loans or extensions of credit, including late deposits of participant contributions. You cannot furnish goods, services, or facilities to parties in interest using plan assets. 

Late contribution deposits represent one of the most common prohibited transactions. The Department of Labor expects you to remit employee deferrals as soon as you reasonably can separate them from general assets. Many organizations miss this deadline without realizing they’ve created a compliance problem. 

What Annual Reports Must Nonprofits File? 

Your organization must file Form 5500 with the IRS and Department of Labor by the last day of the seventh month after your plan year ends. This form discloses information about your plan and its operations to regulators, participants, and the public. You can obtain an automatic two-and-a-half-month extension by filing Form 5558. 

You also need to file Form 8955-SSA to report separated participants with deferred vested benefits. The Social Security Administration uses this information to notify people about benefits they may be entitled to from former employers. 

When Does Your Plan Require an Audit? 

Plans with 100 or more participants at the beginning of the plan year generally require an audit. The Department of Labor provides relief for plans that fluctuate around this threshold. If you have between 80 and 120 participants, you can elect to use the same status you used in the previous year. 

Count all active employees eligible to participate, regardless of whether they actually contribute. Include retired participants and former employees who still have account balances. 

You can choose between a full scope audit or a limited scope audit. A limited scope audit allows the auditor to rely on information certified by qualified institutions without performing detailed testing procedures. 

Working with BPM to Manage ERISA Compliance 

Managing ERISA compliance requires attention to detail and current knowledge of evolving regulations. BPM helps nonprofit organizations navigate these complex requirements while focusing on their mission. Our team works with you to establish strong controls, maintain proper documentation, and meet all reporting deadlines. 

We understand the unique challenges the nonprofit industry faces and provide practical guidance tailored to your organization’s size and complexity. To discuss how we can help you manage your employee benefit plan compliance with confidence, contact us.