A Publication of WTVP

Good governance policies are normally considered part of the for-profit environment. However, the Internal Revenue Service has issued several recommendations related to good governance and new regulations for charitable-entity employee benefit plans, or Section 403(b) plans. These new rules and recommendations affect virtually every tax-exempt entity, and the changes should be adopted by your organization by the end of this calendar year.

Employee Benefit Plans
Certain tax-exempt entities are allowed to adopt a Section 403(b) plan, similar to the 401(k) plan offered by many for-profit entities. In the past, the IRS has not governed these plans with strict requirements. As of December 31, 2008, if your entity has a 403(b) plan, certain requirements must be met in order to continue to defer employees’ salaries.

The regulations provide guidance for 403(b) contracts for public schools and tax-exempt organizations described in Section 501(c)(3), as well as certain church employees and ministers. Due to the significant changes in the new regulations, listed below are some issues that should be considered immediately regarding how these regulations will affect your Section 403(b) plan:

While the IRS has no ability to mandate specific management structures or policies, they do have a belief that organizations with sound governance and board policies are more likely to serve charitable interests than an organization without them. In response to this belief, the 2008 Federal Form 990 has several new questions and information disclosures that will provide insight into the charity’s governance. While not all of the items listed below may be applicable to each organization, they should be considered, as each has a question on the 2008 Form 990.

• All charitable organizations should have a clearly defined mission statement and organization documents. A clearly defined mission statement provides to the public the purpose of the organization, those it serves, goals to be accomplished and how they will be achieved.

For each of the items listed above, the important first step is recognizing a need to evaluate current policies related to governance and employee benefits. Some of the items will take time to implement, but the process of considering and implementing these standards will strengthen an organization. For additional assistance in understanding these or any other IRS requirements, visit the IRS web site at or talk with your accounting professional. iBi