Page 256 - Washington Nonprofit Handbook 2018 Edition

benefit plans, and compliance is not elective. If a program of benefits is subject to
ERISA, compliance with the statute is required.

b. Retirement Benefits

An employer can provide retirement benefits under one or more of a variety
of plans. Excluding special arrangements for executives, all of the retirement
benefit plan alternatives allow for money to be set aside for employees currently (in
a trust, custodial or insurance arrangement), but not available or subject to income
tax until distributed. The types of plans available to provide retirement benefits to
a broad classification of employees include defined benefit plans (i.e. a classic
pension plan), money purchase defined contribution plans, profit sharing plans,
simplified employee pensions, 401(k) plans, and 403(b) plans. The types of plans
differ as to characteristics such as funding rules, contribution limits, whether
contributions are made by the employer, the employee or both. With the exception
of 403(b) plans, all of these plans are available to for profit employers as well.

All of these retirement programs are subject to ERISA, although the
applicable statutory requirements may vary depending on the type of plan and
classification of employees covered. A few key attributes of the retirement plans
most commonly utilized by nonprofit employers follows:

• 403(b) and 401(k) Plans: Probably the most common choices for
nonprofit employers, these plans provide for employee pre-tax
deferrals of salary, and, if the employer chooses, additional employer
contributions. Employees can be allowed to choose the investment
funds to which their accounts are allocated from the choices allowed
by the employer. The plans are similar in most respects, but deferrals
under a 401(k) plan are subject to a nondiscrimination test not
applicable to 403(b) plan, and an additional catch up contribution
opportunity can be provided under a 403(b) plan. The tax
requirements for 403(b) plans are set forth in section 403(b) of the
Code. The primary tax qualification rules for 401(k) plans are set forth
in sections 401 and 415 of the Code.

• Simplified Employee Pensions: Instead of establishing and
maintaining a separate retirement plan, an employer can make
contributions to the individual retirement accounts of its employees.
Such arrangements are available only to employers with 100 or fewer

WASHINGTON NONPROFIT HANDBOOK -245- 2018