6 Ways Nonprofit Retirement Plans are Evolving

Written by HoganTaylor | Mar 12, 2024 3:21:49 PM

In the ever-changing landscape of nonprofit retirement planning, staying abreast of regulatory updates is paramount. The SECURE Act 2.0, following its predecessor from 2019, has ushered in significant shifts, particularly impacting 403(b) retirement plans. As we navigate through these changes, let's explore six key provisions reshaping nonprofit retirement plans and their implications for organizations and employees alike.

Effective January 1, 2024

  1. Introducing Pension-Linked Emergency Savings Accounts (PLESAs)
    Nonprofit employers have the option to offer PLESAs, allowing employees to contribute funds linked to their 403(b) plans. Contributions to these accounts are made on an after-tax basis, and the account balance attributable to employee contributions can’t exceed $2,500 (which will be indexed for inflation). Workers generally may make withdrawals from a PLESA much more easily than they can obtain a 403(b) plan hardship distribution or loan. These accounts provide a flexible avenue, offering relief during financial emergencies.
  2. Facilitating Student Loan Match
    The SECURE Act 2.0 permits employers to match employees' 403(b) contributions based on their student loan payments. This innovative provision aims to bolster retirement savings, acknowledging the financial burdens of student loan obligations.

Effective January 1, 2025

  1. Embracing Automatic Enrollment
    New nonprofit plans, adopted after 2024, must incorporate automatic enrollment features, empowering employees to participate effortlessly. Employees can then choose to opt out if they don’t want to participate. While exemptions exist for smaller organizations, this mandate aims to enhance retirement readiness by encouraging broader participation.
  2. Expanding Catch-Up Contributions
    In a move to bolster retirement savings for older employees, the SECURE Act 2.0 introduces expanded catch-up contributions. Generally, taxpayers age 50 and older are allowed to make additional “catch-up” contributions. Now, employees aged 60 to 63 can contribute larger sums of $10,000 (indexed for inflation) or 150% of the regular catch-up limit, whichever is greater, offering a crucial opportunity to bridge retirement savings gaps.
  3. Inclusivity for Part-Time Workers
    Under the first SECURE Act, part time workers are eligible to join their employer’s 403(b) plan if they have 500 hours of service each year for three consecutive years. On January 1, 2025, part-time workers can join their employers' 403(b) plans after two years of service. This adjustment enhances retirement benefits accessibility, acknowledging the contributions of part-time staff.

Effective January, 1, 2026

  1. Restructuring Catch-Up Contributions for Higher-Paid Employees 
    Higher-paid employees will see changes to catch-up contribution rules, primarily impacting Roth 403(b) accounts. Employees who earned more than $145,000 in the prior year (indexed for inflation) will be allowed to make catch-up contributions to a Roth 403(b) account. This adjustment seeks to align contribution limits with income levels, fostering equitable retirement planning opportunities. This change is in addition to a Roth 403(b)-related provision that went into effect in 2022, allowing Employees to elect that their employer makes matching contributions to their Roth 403(b) – if the nonprofit offers one. (Previously, matching contributions could be made only to an employee’s traditional account, even if the employee contributed to a Roth account.)

Maintaining Core Tenets

While these changes reshape the retirement planning landscape, core principles remain unchanged. Traditional 403(b) contributions continue to offer tax-deferred growth, with withdrawals taxed upon retirement. Additionally, 403(b) contribution limits for 2024 remain steady at $23,000 and participants age 50 or older can make catch-up contributions of an additional $7,500. Participants who have been employed by your nonprofit for more than 15 years may be eligible to contribute an extra $3,000 a year, if you’ve included this provision in your plan.

Navigating the complexities of nonprofit retirement planning requires vigilance and adaptability. As the SECURE Act 2.0 unfolds, organizations must stay informed to ensure compliance and optimize retirement benefits for their employees. Should you have inquiries regarding these changes or seek guidance on maximizing your 403(b) plan, we're here to assist you every step of the way.

 

How HoganTaylor Can Help

The HoganTaylor Nonprofit team of business advisors and CPAs is comprised of former CFOs, controllers, and industry experts with extensive experience providing the guidance organizations need to lean forward again in their leadership. If you have any questions about this content, or if you would like more information about HoganTaylor’s Nonprofit practice, please contact Jack Murray, CPA, Nonprofit Practice Lead.

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.