Page 255 - Washington Nonprofit Handbook 2018 Edition

• Have the executive compensation approved by the full board (except
for conflicted members).

• Review the executive’s performance no less frequently than annually
to determine whether goals and expectations are being met.

CHAPTER 69. Employee Benefits And Executive Deferred Compensation

a. Introduction

The term “employee benefits” refers to a broad category of non-cash benefits
offered by an employer to its employees. Such benefits can include tax-deferred
retirement accounts, group insurance, health care benefits and various other
benefits. Although no employer is required to offer any such benefits to
employees, nonprofit must consider offering a competitive benefits package in

order to attract and retain the staff needed to accomplish its goals.

In considering which benefits to offer, a nonprofit employer must consider
the direct and indirect costs. In addition to any employer contributions that are
contemplated, costs will include, depending on the type of plan, drafting, annual
administration (internal, external, or both), annual legal compliance such as testing
and reporting and disclosure (internal, external, or both), liability insurance, and
potential claims. Failure to satisfy the applicable compliance rules can result in
financial penalties and lawsuits. Accordingly, a nonprofit employer should consider
its ability to bear the financial burden of a plan, its willingness to be exposed to risk,
its ability to administer (or pay to administer) the plan, as well as evaluate the type
of benefits offered by employers likely to be competing for the same talent.

One characteristic that nearly all employee benefit plans share is that they
are subject to federal regulation pursuant to both the Internal Revenue Code (“the
Code”) and the Employee Retirement Income Security Act of 1974 (“ERISA”). As a
general matter, the relevant provisions of the IRC are designed to result in no
income tax, or delayed income taxation, on employees with respect to the benefits
provided. The conditions imposed to obtain the desired tax result include,
depending on the type of plan, nondiscrimination rules, funding rules, contribution
limits, and vesting schedules.

Plans subject to ERISA must satisfy rules pertaining to reporting and
disclosure, vesting, protection of assets, plan administration, and fiduciary
responsibility. It should be noted that ERISA applies to most types of employee

WASHINGTON NONPROFIT HANDBOOK -244- 2018