Two federal bills target nonprofit retirement plans

Nonprofit employees with 403(b) retirement plans would be able to participate in collective investment trusts (CITs), if new federal legislation passes and is signed into law. A CIT is a tax-exempt investment vehicle that is similar to mutual funds that provides diversified, pooled investments. 

Under current law, 401(k) holders, 403(b) plan sponsors are not able to use this stable, lower-cost investment option in their plans. This legislation is intended to create parity between 403(b) and 401(k) retirement savings plans and would be available to an estimated more than 15 million employees at hospitals, public universities, churches, charities and other nonprofits. 

The Retirement Fairness for Charities and Educational Institutions Act (S.4917) has bipartisan support and is sponsored by U.S. Senators Katie Britt (R-Ala.), Raphael Warnock (D-Ga.), Bill Cassidy (R-La.), and Gary Peters (D-Mich.) 

“Americans serving in the nonprofit sector should have the ability to access retirement resources that fit their needs,” said Britt said via a statement. “Through the Retirement Fairness for Charities and Educational Institutions Act, Americans in the nonprofit sector would be able to access the same investment options available to those in the private sector. It levels the playing field so that more hardworking Americans can access retirement sooner.” 

The bill has support from American Retirement Association, Investment Company Institute, American Heart Association, American Council of Life Insurers, Habitat for Humanity, National Council of Nonprofits, Council on Foundations, Lutheran Services of America, United Way and SIFMA. 

The bill has been read twice and referred to the U.S. Senate’s Committee on Banking, Housing and Urban Affairs. 

Also in Congress, Sen. James Lankford (R-Okla.) and Sen. Catherine Cortez Masto (D-Nev.) introduced a nonprofit tax credit bill titled the “Small Nonprofit Retirement Security Act of 2024.” If passed and signed into law, it would make available a tax credit of up to $5,000 for the three years of a retirement plan’s operation. There would also be $500 for auto-enrollment features. 

American Retirement Association (ARA) Director of Federal Government Affairs James Locke was quoted in a statement reported by the National Association of Plan Advisors as explaining the legislation gives charitable organizations the same incentives to adopt a retirement plan and automatic enrollment features that currently exist for for-profit organizations. Current law provides a tax credit for small employer pension plan start-up costs and a credit for including automatic enrollment features.