Retirement Plan Options for Non-Profit Organizations

Non-profit organizations offer retirement plans to attract and retain employees. For retirement benefit purposes, a non-profit is an entity granted tax-exempt status under Internal Revenue Code section 501(c)(3), which includes many charitable, religious, and educational institutions. The framework for retirement savings in the non-profit sector is supported by specific plan types designed for the unique operational and financial structures of these organizations. The available options differ in their design and administrative requirements.

Available Retirement Plan Options

Non-profit organizations have several retirement plan options. The 403(b) plan is a common choice created for public schools and 501(c)(3) tax-exempt organizations. It functions much like a 401(k) plan, allowing employees to save for retirement through payroll deductions on a pre-tax or after-tax (Roth) basis.

Non-profit organizations are also eligible to establish 401(k) plans. These plans are available to nearly any employer and provide flexibility in plan design and investment options. For some non-profits, a 401(k) may offer advantages in administrative features or cost, making it a competitive alternative to the 403(b).

For smaller non-profits with 100 or fewer employees, a Savings Incentive Match Plan for Employees (SIMPLE) IRA offers a streamlined alternative with straightforward setup. A feature of SIMPLE IRAs is the mandatory employer contribution, which ensures all participating employees receive retirement funding from the organization.

The Simplified Employee Pension (SEP) IRA is another option funded exclusively by employer contributions. This plan offers flexibility, as employers can decide how much to contribute annually, from nothing up to a percentage of an employee’s compensation. Since there are no employee contributions, the administrative burden is low.

Key Plan Features and Contribution Rules

A point of comparison between retirement plans is the annual contribution limits set by the IRS. For 2025, both 403(b) and 401(k) plans allow employees to contribute up to $23,500. Employees aged 50 and over can make additional “catch-up” contributions of $7,500. A provision beginning in 2025 allows participants aged 60 through 63 to make a larger catch-up contribution of 150% of the standard amount.

SIMPLE IRAs have a lower employee contribution limit of $16,500 for 2025, with a $3,500 catch-up for those 50 and older. SEP IRAs are funded solely by the employer, with a limit of up to 25% of compensation, not to exceed $70,000 for 2025.

Employer contribution rules also vary. In a SIMPLE IRA, contributions are mandatory; the organization must either match employee contributions up to 3% of salary or make a non-elective contribution of 2% of compensation for all eligible employees. In contrast, employer contributions in 401(k) and 403(b) plans are discretionary. An employer can choose to offer a matching contribution or make a profit-sharing contribution to all eligible participants.

Vesting schedules determine when an employee gains full ownership of employer contributions. In SIMPLE and SEP IRA plans, all employer contributions are immediately 100% vested. For 401(k) and 403(b) plans, employers can implement a vesting schedule, such as “cliff” vesting where an employee is 100% vested after a specific period, or “graded” vesting where ownership increases incrementally.

The Employee Retirement Income Security Act of 1974 (ERISA) establishes standards for most private-sector retirement plans. 401(k) plans and most 403(b) plans with employer contributions are subject to ERISA requirements, which include annual reporting, participant disclosures, and fiduciary duties. SEP and SIMPLE IRAs, along with certain 403(b) plans with minimal employer involvement, are exempt from ERISA, simplifying their administration.

Establishing a Retirement Plan

Establishing a retirement plan begins with selecting service providers to manage it. Non-profits will need a recordkeeper to track accounts, a third-party administrator (TPA) for compliance and filings, and a financial advisor for investments. These roles are sometimes bundled, but the organization is responsible for ensuring the services meet the plan’s needs.

A formal written plan document is the legal instrument governing the plan’s operations and must be adopted by the organization’s leadership. This document finalizes and details all plan rules, including eligibility requirements like minimum age and hours of service. It also defines what compensation is used for calculating contributions and specifies the vesting schedule for employer contributions.

After choosing a service provider and drafting the plan document, the organization completes a plan adoption agreement. This standardized form from the financial institution or TPA formalizes the plan’s establishment. The agreement captures the specific features the non-profit has chosen, and the organization will need its Employer Identification Number (EIN) and information on designated trustees to complete it.

Ongoing Administrative and Fiduciary Duties

Once a plan is active, the organization’s leaders assume ongoing responsibilities as plan fiduciaries. A fiduciary is anyone with discretionary control over the plan’s management or assets and has a legal duty to act in the best interest of participants. This involves selecting and monitoring investments, ensuring plan expenses are reasonable, and administering the plan according to its document.

An operational task is the timely deposit of contributions. Employee salary deferrals must be remitted to the plan’s trust as soon as they can be segregated from the employer’s assets, following Department of Labor timelines. Employer contributions must be deposited by the deadline specified in the plan document, often tied to the organization’s tax filing date.

Annual reporting is a requirement for most ERISA-governed plans. The primary obligation is filing Form 5500, an annual report submitted to the Department of Labor and the IRS detailing the plan’s finances, investments, and participants. Plans with fewer than 100 participants file a simplified Form 5500-SF, while larger plans have more extensive requirements and may need an audit.

Non-profits must also provide regular disclosures to participants. These include a Summary Plan Description (SPD), which explains the plan’s features, and a Summary Annual Report (SAR), a synopsis of the Form 5500 filing. Participants must also receive disclosures on plan-related fees and investment performance to help them make informed decisions.