Victory at last.
Fittingly, some of the many association community volunteers who had a hand in getting the measure passed were on hand to witness the occasion on the south lawn of the White House. And moments after signing the bill, President Clinton told ASAE's delegation how pleased he was with the passage of the 401(k) provision. "It's time we ended the injustice to what must be millions of workers," he remarked.
What the law means
This enormously important legislation means that all associations may begin offering 401(k) plans for the plan year beginning January 1, 1997. Section 501(c)(3) organizations already are able to offer Section 403(b) tax-deferred savings plans to their employees. Those who offer the 403(b) plan are not likely to see a greater benefit with the 401(k) plan, and in some instances may even find the 401(k) to be less advantageous to their staffs. The ability to offer the 401(k) will be a godsend to those 501(c)(6) organizations that have not been able to do so.
Since the enactment of the Tax Reform Act of 1986, only those nonprofit organizations with 401(k) tax-deferred savings plans in place before July 2, 1986, have been permitted to retain them, and no other nonprofit organizations have been permitted to establish such plans. Among the few options available to associations that were not "grandfathered" were the Section 457 deferred-compensation plans. (The tax code prohibits associations from rolling 457 plan assets into a 401(k).)
The reason for this unfairness in the tax code was a misconception by members of Congress that all 501(c) organizations had access to other forms of deferred retirement savings. In reality, only 501(c)(3) organizations had such acces -- to Section 403(b) plans. So, for example, a 501(c)(6) organization that hadn't started a 401(k) plan by July 2, 1986, had extremely limited options for offering staff members a means of saving for retirement via pre-tax salary deductions. The new legislation solves that problem for 501(c)(6) organizations and other nonprofit entities that, under the tax code, do not have access to 403(b) plans.
"Employees of nonprofit organizations now have the opportunity to save for their retirement in the same way that other public- and private-sector employees have enjoyed" says ASAE President R. William Taylor, CAE. "The old law imposed a grossly unfair burden on certain tax-exempt organizations, making it difficult for many to attract and retain qualified employees."
How we got here
Since passage of the 1986 law, it has taken 10 years of lobbying by the ASAE-led 401(k)s for 501(c)s Coalition (representing more than 3,000 associations, labor organizations, chambers of commerce, and other nonprofit organizations) to restore fairness to the tax code. The issue of 401(k) reinstatement has been a major legislative priority of ASAE ever since that time.
Twice in recent years Congress passed 401(k) reinstatement provisions, only to meet with vetoes by President Bush and President Clinton because the measures were part of larger, more controversial legislative packages. But this time the association community got the result it has long sought.
"We're delighted that the association community's hard work has paid off with the help of the 401(k)s for 501(c)s Coalition" says Taylor. "In fact, 401(k) reinstatemet was among the top issues ASAE members and ASAE's grass-roots State Action Legislative Team members fought for when they conducted visits on Capitol Hill for our special Associations Advance America Day during the past two years."
Other Tax Law Changes
A few other provisions in the Small Business Job Protection Act are of particular interest and benefit to association executives:
* One provision extends the Section 127 tax exclusion for employer-provided educational assistance retroactively from January 1, 1995, to July 1, 1997. (A drafting error extended the exclusion to July 1, 1997, from the intended May 31, 1997, cutoff; Congress may make a technical correction.) The provision phases out the exclusion for graduate-level expenses after one year.
* The new law also allows for the indexing of Internal Revenue Code Section 457 plans. It allows for indexing in $500 increments on the dollar limit for deferral. Currently, the limit on how much can be deferred under a Section 457 plan is the lesser of $7,500 or one third of total compensation.
* Also note that the law allows smaller employers to offer Section 401(k) plans in a much easier fashion. The SIMPLE (Savings Incentive Match Plan) plan is applicable where an organization has 100 or fewer employees.
Find Out About 401(k)s
Also called cash-or-deferred arrangements (CODAs), 401(k) plans enable employees to save for their retirement with or without the benefit of employer contributions. These retirement plans are fast becoming among the most popular employee benefits in the country. The principal tax advantage of a 401(k) plan is that an employee may make contributions by salary reductions before federal income tax is calculated.
For associations interested in establishing 401(k) plans for their employees, ASAE offers retirement program services through JZA, Inc., Alexandria, Virginia. For free information about establishing 401(k) and other retirement programs for association employees, call JZA, (703)683-7274.
ASAE has also teamed up with the Chicago-based American Buying Retirement Services, Inc., for associations interested in providing 401(k) plan and supplemental retirement programs to their members. For a free brochure, call the ASAE Services Corp., (202)626-2835, or American Buying Retirement Services, (800)495-4050.
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|Title Annotation:||includes related article on tax law changes and tips for plan establishment; for 401k plans|
|Author:||Boege, Robert S.|
|Date:||Oct 1, 1996|
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