Non Profits and Db Plans

[abanky]

What are the restrictions to setting up a db plan for a nonprofit?

Client is in her late 50's and has no retirement plan. She has high employee turnover so most of the contributionwould go to her. Anything I have to set up different then a normal db plan?

Thanks,

Andrew

[Lori Friedman]

Most exempt organizations can sponsor any qualified plan, under the same rules that pertain to for-profit employers.

The tricky area is NONqualified plans and deferred compensation arrangements. Exempt organizations are subject to a whole Pandora's Box of restrictions that don't apply to their for-profit counterparts.

By the way, your client has an unusual situation. Except for labor organizations, I seldomly work with a tax-exempt organization that sponsors a defined benefit plan. In general, exempt orgs shun DBPs. Contributions are hefty and difficult to budget over the long term, and exempt organizations don't benefit from the resulting tax deductions.

[AndyH]

Lori, my experience is exactly the opposite with non profits and db plans. I find that many non profits look to dbs to provide benefits in lieu of (countable) pay, just like a government employees might want. That is true of ones that are both closely controlled and institutional. Employees of institutional non profits don't tend to be as financially astute so their meager 403(b) programs don't cut it.

abanky, one thing to watch for (if this is possible) is reasonable compensation and anything that might threaten non profit status. In my neck of the woods, EP (Employee Plans) and EO (Exempt organizations) sit across an aisle from each other and EO looks for reasons to audit based upon EP findings. At least that is what an experienced IRS auditor once told me while auditing a large non profit DB client.