Qualified Plan Rules & ERISA Compliance
The rules that keep a retirement plan qualified — fiduciary duties, vesting, controlled groups, and more, in plain English.
Reviewed by Alexander Tecle, MBA, MS Taxation
President & Founder · Verify on SEC IAPD (opens in a new tab)
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Know the design
Understand what the plan provides and how it is funded.
Check the fit
Consider your income, team and ability to keep funding it.
Review your options
Use the guide below to prepare for a plan discussion.
A qualified retirement plan delivers big tax advantages, but only if it follows the rules. Getting compliance wrong can mean penalties, lost deductions, or even disqualification.
This reference hub explains the key compliance topics every plan sponsor should understand, from fiduciary responsibilities under ERISA to controlled-group and nondiscrimination rules.
On this page
Fiduciary responsibilities under ERISA
If you sponsor a plan, you (or your trustees) have fiduciary duties — to act in participants' interests, invest prudently and diversify, and follow the plan document. Our three-part ERISA series breaks this down, including the personal liability that comes with the role.
Controlled groups & affiliated service groups
If you own or are connected to multiple businesses, IRS controlled-group and affiliated-service-group rules may require you to consider employees across all of them when designing benefits. Getting this wrong is a common and costly mistake.
Identify ownership links
Review common ownership and service relationships across every connected business.
Combine required employees
Apply controlled-group and affiliated-service-group rules to the relevant workforces.
Test the full plan
Run coverage, nondiscrimination, vesting, and top-heavy requirements on the proper population.
Operate to the document
Follow the written plan terms and avoid prohibited transactions in ongoing administration.
Vesting, top-heavy testing & prohibited transactions
Vesting schedules, top-heavy testing, and prohibited-transaction rules all shape how a plan must operate day to day. The articles below cover each in detail.
Related articles
Vesting Requirements of Qualified PlansLearn about vesting in qualified plans, including vesting schedules for cash balance and qualified plans, and why vesting is important for business owners.
What is a Combined Group?Learn about combined groups, including how they are formed through parent-subsidiary and brother-sister relationships, and their importance for employee benefit plan compliance.
Unrelated Business Income In Qualified Plan InvestmentsAn overview of Unrelated Business Taxable Income (UBTI) and how it affects tax-exempt organizations and qualified retirement plans.
Understanding Employee Leasing and Professional Employer OrganizationsA comprehensive guide on employee leasing and Professional Employer Organizations (PEOs), explaining their definitions, general rules, and how they apply to modern business practices.
Understanding Affiliated Service GroupsLearn about affiliated service groups and how they ensure equitable participation in retirement plans for all employees, preventing discriminatory practices.
Types of Stocks Not Included in Controlled Group DeterminationLearn about the types of stocks excluded from the determination of controlled groups to ensure regulatory compliance and prevent manipulation of ownership percentages.
Types of Controlled GroupsLearn about the different types of controlled groups such as Parent-Subsidiary, Brother-Sister, and Combined, and understand their importance in ensuring fair employee benefit programs.
The Top-Heavy Rules for a Defined Contribution PlanLearn about top-heavy plans, including what they are, how they affect retirement plans, and remedies for business owners to ensure compliance and fairness.
The Process for Investing For Qualified PlansAn overview of investment strategies for qualified plans, including objectives, investment vehicles, and best practices for formulating an effective investment strategy.
Suitable Investment Strategies for Retirement Plans Governed by ERISAExplore the essential rules under ERISA for managing retirement plans and the strategies for balancing safety, growth, and compliance.
Qualified Plan ComplianceUnderstanding the eligibility, testing requirements, and exceptions for qualified retirement plans.
Prohibited Transactions in Employee Benefit PlansUnderstanding prohibited transactions in employee benefit plans is crucial for business owners. Learn about the restrictions imposed by the Internal Revenue Code and ERISA to protect plan participants and ensure plan integrity.
Frequently asked questions
What does it mean to be a plan fiduciary?
A fiduciary must act prudently and solely in participants' interests when managing the plan and its investments. Fiduciary breaches can carry personal liability — see our ERISA series for the specifics.
What is a controlled group, and why does it matter?
It's a group of related businesses the IRS treats as one employer for benefit purposes. If you own multiple companies, their employees may all need to be considered in your plan to stay compliant.
Sources
- ERISA §404 — fiduciary duties (29 U.S.C. §1104) (opens in a new tab)
- ERISA §203 — minimum vesting standards (29 U.S.C. §1053) (opens in a new tab)
- IRC §414 — controlled and affiliated service groups (opens in a new tab)
- IRC §1563 — controlled group definitions (opens in a new tab)
- IRC §416 — top-heavy plans (opens in a new tab)
- IRC §4975 — prohibited transactions (opens in a new tab)
- IRS — A guide to common qualified plan requirements (opens in a new tab)
- IRS — Retirement topics: vesting (opens in a new tab)
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This guide is educational and is not individualized tax, legal, or investment advice. Contribution limits and tax rules change annually and depend on your specific situation; figures are illustrative. Consult a qualified professional before acting.