According to the National Center for Charitable Statistics, more than 1.4 million nonprofit organizations exist in the United States alone. Nonprofits differ in their fields of interest, ranging from charities and religion, to health, wildlife protection, science, literature and the arts. While the areas of focus may vary, one thing applies to every organization: nonprofit board members must maintain financial accountability of their organization. In ERISA 3(16) for Nonprofits (And Why It is Important), we will help you understand the fiduciary responsibility, associated risks, and labor burden that board members and executives of nonprofits who offer retirement plans are faced with.
What are the Responsibilities of the Board for Nonprofits?
According to the National Council of Nonprofits, board members are responsible for steering the organization towards a sustainable future by adopting sound ethical and legal governance as well as financial management policies; making sure that the organization has adequate resources to advance its mission.
The board has three primary legal duties, known as the “three D’s,” including:
- Duty of Care: Board members are expected to take care of the nonprofit by ensuring prudent use of all assets, including facility, people, and good will.
- Duty of Loyalty: When acting on behalf of the nonprofit, board members must ensure that the organization’s activities and transactions are, first and foremost, advancing its mission; Recognize and disclose conflicts of interest; Make decisions that are in the best interest of the nonprofit corporation, not in the best interest of the individual board member (or any other individual or for-profit entity).
- Duty of Obedience: Board members for nonprofits must ensure that the nonprofit obeys applicable laws and regulations; follows its own bylaws; and that the nonprofit adheres to its stated corporate purposes/mission. This includes regulations and guidance issued by the IRS requiring that the board not act outside the cope of the nonprofit’s legal documentations.
What is the Board’s Fiduciary Responsibility?
As stewards of public trust, board members of nonprofits must stay objective, responsible, honest, and exercise reasonable care in all legal and financial decision making. They also must ensure compliance with federal and state regulations.
From evaluating financial policies and annual budgets to navigating the complex fiduciary landscape, the fiduciary duty for nonprofits requires that the board must always act for the good of the nonprofit without placing the organization in unnecessary risk.
Why is an ERISA 3(16) Plan Administrator for Nonprofits Important
Nonprofits who offer a retirement savings plan not only help employees save for the future but may also help an organization attract and retain better-qualified employees.
Whenever nonprofits offer a 401(k) or 403(b) plan, the board has a fiduciary responsibility to operate the plan according to the federal Employee Retirement Income Security Act of 1974 (ERISA) standards of conduct. As the plan sponsor, the board’s fiduciary responsibility is to act solely in the interest of the plan participants as well as act prudently with retirement plan investments and ensure the plan’s operating costs are reasonable.
Nonprofits face incredibly unique and far-reaching challenges every day. Board members must oversee the overall health of the organization as well as manage the day-to-day retirement plan operations, which could put the nonprofit at risk; as not every board member or executive has the liability background or the fiduciary knowledge to ensure that the plan operates in compliance. If a DOL audit determines the plan is non-compliant, the board members could possible face fines or legal action from plan participants. A financial risk that could jeopardize the foundation’s mission. Every nonprofit director should realize that they are legally liable for any oversight or inaction; nonprofit fiduciary responsibilities must be taken seriously.
While keeping up with ERISA and IRS regulations and compliance is vitally important to a retirement plan sponsor, it can be difficult and time-consuming. An outsourced ERISA 3(16) plan administrator can alleviate that burden.
NPPG Fiduciary Services (NPPG-FS) ERISA 3(16) Plan Administrator for Nonprofits
Retirement plans for nonprofits can be complicated. For an organization’s retirement plan to run smoothly, it needs a reliable retirement plan fiduciary to not only manage its assets and the day-to-day plan operation, but also its compliance with the complex requirements under the fiduciary standard.
By delegating a majority of fiduciary duties to NPPG-FS, a nonprofit organization not only reduces the overall labor burden associated with their retirement plan, but more importantly, they relieve themselves of most of the liability.
NPPG provides a full range of retirement plan consulting services, focusing on the complete plan design, implementation, and administration for nonprofit retirement plans. Operating only with clients’ best interest in mind, our ERISA 3(16) Plan Administrators aim to bring order to the chaos for nonprofits and help plan sponsors prepare to meet their duty of care.
For further information, contact Northeast Professional Planning Group, Inc. corporate office in Red Bank, NJ at (732) 758-1577.