Retirement-Plan Firms See Money in Nonprofits

BOSTON (TheStreet) -- Federal regulations are shaping how nonprofit organizations manage employee benefit plans for the first time in almost 45 years.

As a result, companies are scrambling to meet the Dec. 31 deadline for compliance. Retirement-management firms have scoped out a new opportunity. MassMutual, for example, recorded a 76% increase in nonprofit-retirement-plan sales in the year through October.

The Internal Revenue Service and Department of Labor are bringing 403(b) retirement plans, which are offered to employees of nonprofit companies, in line with 401(k)'s, which are mostly used by for-profit firms. The government hasn't established a set of guidelines for 403(b)'s since 1964.

Among the requirements for written plan documents that describe, in detail, terms and conditions for eligibility, benefits, features and distributions. New nondiscrimination rules mandate that any employee who works at least 20 hours a week must have access to a plan. Limits on employee contributions and new guidelines for distributions, plan loans, transfers, hardship deductions and accounting procedures are defined.

Within the defined-contribution market, 403(b) plans command a 25% share and are expected to exceed $900 billion in assets by 2011.

"The nonprofit market presents unique challenges and the regulatory environment can be overwhelming for plan sponsors," says M. Palmer Whitney, national managing director for MassMutual's nonprofit market. "When you are running a nonprofit organization, you never had to do these things and all of a sudden you really need to go out and get some support. That's where we are coming in and having some success."