Legislation Proposed to Provide Tax Incentives for Small Nonprofit Retirement Plans

Both houses of Congress saw legislation introduced on Monday that would provide tax incentives to help nonprofits launch retirement benefits.

In the House of Representatives, Representative Vern Buchanan, R-Florida, vice chair of the House Committee on Ways and Means, introduced the Small Nonprofit Retirement Security Act, co-sponsored in the House by Representatives Jimmy Panetta, D-California; Blake Moore, R-Utah; and Brad Schneider, D-Illinois; with companion legislation introduced in the Senate by Senators James Lankford, R-Oklahoma, and Catherine Cortez Masto, D-Nevada.

The legislation seeks to address a gap in federal tax policy that excludes nonprofit organizations from accessing retirement plan start-up tax credits established under the Setting Every Community Up for Retirement Enhancement Act of 2019. Because nonprofits are tax-exempt, they currently cannot use those credits against income taxes they do not pay—leaving many unable to afford offering retirement benefits.

If enacted, the bill would allow nonprofits to apply the federal tax credits toward their payroll tax liability, unlocking up to $5,000 per year to start a retirement plan and an additional $500 annually for adopting automatic enrollment. These incentives mirror those provided to for-profit small businesses under the SECURE 2.0 Act of 2022.

“Every American deserves the opportunity to save for retirement, including the millions who are dedicating their lives to charitable work,” said Buchanan. “This commonsense bill ensures nonprofits have the same tools as small for-profit businesses to support their employees’ future.”

The House version of the bill was referred to the House Committee on Ways and Means and the Senate version to the Senate Committee on Finance, where it languished in the previous Congress after Lankford introduced the legislation.

Nonprofits account for nearly 10% of the U.S. workforce and contribute an estimated $65 billion annually in payroll taxes, according to a news release announcing the bill. Yet many small charities struggle to offer retirement plans due to limited resources, Lankford stated.

“Oklahoma’s nonprofits are vital to our communities, providing essential services every day. Many small nonprofits struggle to offer retirement plans due to cost and limited access,” Lankford said in the statement. “This legislation extends critical startup and auto-enrollment tax credits to nonprofits the same as for-profit businesses, allowing them to attract and retain talented employees.”

The American Retirement Association endorsed the proposal, noting the significant number of nonprofit workers who lack access to employer-sponsored retirement plans.

“One out of 10 U.S. workers is employed by a nonprofit organization,” ARA CEO Brian Graff said in a statement. “Most of them are smaller and do not offer a retirement plan. This legislation will ensure that nonprofits have access to the same tax incentives for starting up a retirement plan that were provided to for-profit small businesses in SECURE 2.0.”