Breaking Into the Tribal Retirement Plan Market

When working with tribal nations, building a solid relationship is the first and most important step.

The Pension Protection Act of 2006 (PPA) established that tribal government employee benefit plans would not be treated as governmental plans, unless all the participants in the plan were performing essential governmental and not commercial activities.

So, any tribal employee benefit plans covering any “commercial” employees—for instance, those working in tribal gaming operations—must comply with the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code in the same way as employer-sponsored plans in the private sector.

An exception occurs under 457 regulations, says Jennifer McCoy, senior plan consultant with Strategic Retirement Partners in Shorewood, Illinois. Those regulations do not recognize tribal governments, so they cannot sponsor a 457 governmental plan. As a result, tribal governments commonly set up 403(b) or 401(k) plans, she explains.

“There are general guidelines and facts and circumstance testing that can be applied to determine what functions fall under the government or the enterprise activities,” she says. Tribal governments can sponsor an ERISA-compliant plan that covers the employees of enterprise as well as government entities, or they can sponsor two separate plans: one that is an ERISA-compliant plan for commercial entities, and a non-ERISA plan for government employees. 

McCoy, who has worked with tribal governments using both approaches, explains that the non-ERISA plan for government employees is not subject to compliance testing, Form 5500 filings and disclosure requirements, and plan oversight is self-regulated.

As sovereign nations, explains Cory Blankenship, associate vice president and relationship manager, retirement services at USI Consulting Group in Knoxville, Tennessee, tribes understand their relationship with the federal government as one of government to government. They are at times subject to federal law, which can occasionally limit the tribe’s degree of sovereignty.

“It is our inherent right to govern ourselves and our affairs,” says Blankenship, who is a member of the Cherokee tribe.

NEXT: Relationship management in tribal nation plans

Blankenship recommends first developing a relationship with the tribe and engaging with the community of the tribe for a lasting relationship. “The relationship is very important,” he says, “it’s more than a name or power behind a well-known firm or a large firm.” While Native American tribes do business with large firms, they want to know the members of a team.

Each tribe does business differently, Blankenship explains, with some only doing business by consensus and others more willing to delegate to decisions to some members.

Whether dealing with an investment management or advisory, Blankenship says many tribes look for an organization that gives back to the community in some way, and most firms will do well if they have professionals on staff that are able to communicate flexibly: with tribal council, or individuals in the organization.

“Relationships can take a long time to develop, Blankenship cautions. “Gain trust, demonstrate an appropriate level concern as well as the stability of your team.” He notes that tribes may be leery of firms with high turnover or where a manager has a high number of accounts, and that low cost may be relatively unimportant in the face of other characteristics. Tribes look for relationship, expertise and a firm that will put in the time to understand all the nuances

“It’s important to understand why a tribal government has made their decision to maintain one plan or separate into two,” McCoy says. “If helping with a vendor or third-party administrator search it’s important to ensure the service providers have an understanding of tribal government plans and are set up to communicate properly on the ERISA plan as opposed to the non-ERISA plan.  Tribal governments may have employees covered under certain treaties that may impact how compensation is calculated and this should be reviewed thoroughly when drafting plan documents and plan compensation definitions for ERSIA compliant plans.”

Blankenship’s tribe, with lands at the southern Gate of Smoky Mountain National Park, has had a tourism economy since the 1940s, with restaurants, gift shops and other retail businesses. He explains that it is the most-visited park in the National Park system, and tribal lands must be crossed to access the park at the southern end in North Carolina.

NEXT: Multiple plans in a tribal nation

Blankenship explains the tribe has rolled up all the entities—including a hospital, a school system, vocational opportunities program—into two 501(c)(3)s. Since the tribe’s gaming operation is a commercial operation, its retirement plans are subject to ERISA—but the tribe’s government plan is not.

Blankenship’s tribe also offers a defined benefit (DB) plan for elected officials. When someone is elected to a tribal council position, he explains, he does not earn Social Security benefits during that period of service. “For many tribes, when members come into leadership positions they’re there for an extended time,” perhaps six or seven terms, Blankenship explains, during which they do not pay into the Social Security system. The DB was created in order for these members to earn retirement benefits while serving their tribal nation.

What tribes want, Blankenship says, is to know that the plan is keeping pace, making sure it’s well funded, that the tribe sponsoring the plan understands actuarial values, where the tribe needs to be, and the future liabilities.

The plan should promote the social and financial well-being of a tribe. Since the tribe provides employment to tribal members, across different tribes situations can vary. For example, some 80 or so tribes across the country have access to gaming. Blankenship explains that because of geography, other tribes may not be as fortunate—perhaps the location makes them less likely to take advantage of tourism, or they cannot enter the gaming space because of some federal acknowledgement that prevents the enterprise.

Some, new to economic development and with almost no previous opportunities for competitive wages, now want to be able to provide benefits and opportunities for growth, and a plan should allow enrolled members to be able to retire with good benefits, Blankenship says.

Many tribes are concerned about Internal Revenue Service (IRS) regulations, Blankenship says, with some taking the position they are not subject to these regulations because they are sovereign nations, but any practitioner of Indian law knows that this would be the case only when a federal law has explicit language that excludes Indian tribes. Each tribe does business differently, Blankenship explains, with some only doing business by consensus and others more willing to delegate decisions to some members.

An Indian tribe is not just any other government, Blankenship says. “Its functions are unique and complex. You really need a team that understands federal law, state law and tribal law.”