Tax exempt organizations have unique circumstances when it comes to providing retirement benefits to their employees. First, tax exempt organizations have no need for a tax deduction for contributions to retirement plans. Tax exempt organizations must compete with for profit businesses for employee talent yet they cannot offer a stake in the enterprise as an incentive. In addition, paying an individual too much compensation (including benefits) can impose penalty taxes on the organization or its managers and threaten its exempt status as prohibited inurement. The type of tax exempt organization will also dictate what kind of benefits it can provide. For example, generally, only charitable organizations exempt under Internal Revenue Code section 501(c)(3) and certain educational organizations may provide a Code section 403(b) plan. Tax exempt organizations can provide executives with deferred compensation plans but they must meet the requirements of Internal Revenue Code section 457. Also, there are special rules relating to churches.
Our attorneys are experienced with the unique challenges faced by tax exempt organizations as well as the rules and restrictions regarding the benefits that can be provided and can help your organization offer effective and sustainable employee benefits to your employees.