Retirement Plans for Employees of Non-Profits

by Geri Terzo

Non-profit organizations, such as hospitals and charities, for instance, may have altruistic mission statements but that purpose doesn't need to come at the expense of hiring talented professionals. To compensate for generally lower wages than for-profit employers and to attract and keep some of the best workers, small and large non-profits often extend retirement benefits to their employees. As an employee of a non-profit, you'll find that while some plan types are more popular than others you'll encounter some of the very same options as individuals working in the for-profit sector.

Defined Benefit Pension

If your non-profit employer offers a defined benefit pension plan, the organization is one of only 15 percent of non-profits doing so, according to participants in a 2011 Johns Hopkins survey. A defined benefit pension is one in which the plan sponsor, or employer, is required to fund your retirement benefits by making cash contributions so that you have predictable and dependable income when you retire. While a pension is attractive to workers, it can be a burden to employers who are required by law to keep the plan fully funded, meaning that the fund must have enough assets at all times to cover future liabilities.

Defined Contribution

In a defined contribution plan, the non-profit employer isn't responsible for funding the plan or choosing the investments -- you are. The employer does, however, offer you a list of investment funds to choose from and may match the cash deposits that you make up to a certain threshold. As a result of the financial crisis of 2008, financially strained non-profits began either reducing or ending their employee-match programs, however. Of the non-profit employers offering workers retirement benefits and that participated in the 2011 Johns Hopkins survey, more than half of of them have defined contribution funds, such as 403(b), 457 and 401(k) plans.

403(b) and 457 Plans

Non-profits commonly offer employees 403(b) plans. These plans are designed for universities, hospitals and religious organizations, for example, and allow employees to direct a percentage of their salaries into the fund on a pre-tax basis. While 457 plans, which are structured similarly to 403(b) plans, are common among state and local government agencies, some non-profits qualify as well. As a plan member of either plan, you don't have to pay taxes until you begin making withdrawals when you retire. In both plan types, however, there are deferral, or contribution, limits in place. In 2013, members of either plan could contribute up to $17,500 each year.

401(k) Plans

Generally, 401(k) plans -- which have the same contribution limits as 403(b) plans -- are reserved for the for-profit sector, but these plans have also been known to work their way into the non-profit universe as well. Before 2009, non-profits had less stringent audit requirements in a 403(b) compared with a 401(k), which made the former structure more attractive to employers. Starting in 2009, certain 403(b) plans became subject to the same audits with the U.S. Department of Labor, which leveled the playing field between the two different play types. You may find, however, that a 401(k) plan offers you more investment choices as there are fewer limitations to the types of funds these plans can use.

About the Author

Geri Terzo is a business writer with more than 15 years of experience on Wall Street. Throughout her career, she has contributed to the two major cable business networks in segment production and chief-booking capacities and has reported for several major trade publications including "IDD Magazine," "Infrastructure Investor" and MandateWire of the "Financial Times." She works as a journalist who has contributed to The Motley Fool and InvestorPlace. Terzo is a graduate of Campbell University, where she earned a Bachelor of Arts in mass communication.

Photo Credits

  • Keith Brofsky/Photodisc/Getty Images