Nonprofit & 403(b) Plans
What a board owes its 403(b) participants, and its own investments
The 403(b) holds the participants' money. The operating reserve, the restricted funds, and the endowment are the organization's own, and together they are often the larger number with the thinner policy behind them.
In short
A nonprofit board oversees two pools of money: the participants’ retirement plan, and the organization’s own reserves, restricted funds, and endowment. Both carry fiduciary duties. That means prudent selection and monitoring, fees that are reasonable for the services received, and a documented process. MTP Private Wealth at Farther advises on both, including the investment policy and manager selection behind the organization’s own assets.
The duties
Not exotic, just rarely explained
Most board members we meet have never been walked through these, which is not their fault. Nobody hands you a fiduciary briefing when you join a nonprofit board.
- Act for the exclusive benefit of participants, not the organization's convenience or a vendor relationship.
- Select and monitor investments through a prudent, repeatable process you can evidence.
- Confirm that fees are reasonable for the services the plan actually receives.
- Follow the plan document, and correct it when practice has drifted away from it.
- Monitor anyone you delegated to, including the advisor and the recordkeeper.
Where plans drift
Four patterns we find in nonprofit plans
None of these comes from carelessness. They come from a plan that nobody owned for a long stretch of years.
Legacy annuity contracts
Many 403(b) plans were built on individual annuity contracts sold to employees one at a time, sometimes decades ago. Surrender charges, narrow investment menus, and costs well above current alternatives are common, and they are difficult to move, which is how they survive review after review.
Several vendors, no oversight
A plan that collected three or four providers over the years leaves participants with an incoherent menu and the board with no consolidated view of cost. Nobody chose this structure. It accumulated.
No committee, no minutes
Fiduciary compliance is demonstrated with documentation. Where there is no committee, no charter, no investment policy statement, and no minutes, a board that has in fact been careful has no way to show it.
Fees nobody has benchmarked
Nonprofit plans are frequently priced as they were when the organization was much smaller. Since pricing tiers are asset-based, a plan that has grown may be entitled to terms nobody has asked for.
A reasonable first year
Six steps that put the plan on solid ground
None of this requires a large organization. It requires somebody to own it, which is usually where we come in.
01
Form a committee with a short written charter naming who serves and what they review.
02
Adopt an investment policy statement the committee actually uses.
03
Inventory every vendor and contract, including the legacy annuities.
04
Produce a single all-in cost figure for the plan.
05
Benchmark that figure against comparable plans.
06
Record what you decided and why, including any decision to change nothing.
The organization's own money
Reserves, restricted funds, and the endowment
The 403(b) is the participants' money and is governed for them. Everything else is the organization's own, and for many nonprofits it is both the larger pool and the one with no policy behind it.
- An investment policy statement for the organization's own assets, not just for the retirement plan.
- Operating reserve and long-term reserve treated as separate jobs with separate horizons.
- Endowment and restricted-fund management, including spending-policy questions.
- Liquidity planned around grant cycles, capital projects, and payroll.
- Coordination with the finance committee, the auditor, and the treasurer.
- Consolidated reporting the board can read without a translator.
This is where the wider platform matters. Farther carries an institutional side, with the research, manager access, and consolidated reporting that comes with it, so a four-person practice in Marlton can advise a nonprofit on its reserves and endowment as well as on the retirement plan, rather than handing the board to someone else halfway through.
The placement cycle
How the organization's own money gets invested
The same discipline the plan gets, applied to the balance sheet. Most boards have a version of this for the 403(b) and nothing equivalent for their own assets.
01
Decide what each pool is for
An operating reserve covering three months of payroll is a different job from an endowment meant to outlast everyone in the room. Separating the pools by purpose and time horizon comes before any conversation about what to hold.
02
Put the policy in writing
An investment policy statement for the organization's own assets: target allocation and ranges, what is permitted and what is excluded, the spending policy on endowed funds, and who holds authority for which decision.
03
Run a documented search
Managers and funds assessed against criteria the committee set in advance, compared side by side on strategy, terms, and total cost. A documented search is also what separates a decision from a relationship somebody already had.
04
Place the assets deliberately
Funding the allocation on a schedule where that matters, custodying it somewhere the board can see, and keeping restricted funds separable from unrestricted ones in the reporting rather than after the fact.
05
Monitor, review, and minute it
Quarterly reporting read against the policy rather than against the market's mood, rebalancing rules agreed ahead of time, and an annual review of the policy, the managers, and the fees (recorded, including a decision to change nothing).
Why we are in this space
A newer part of the practice, built on old work
Chris Masso and John Torrence have consulted on company retirement plans as partners since 1999, and nonprofit plans are a deliberate extension of that. The governance questions are the same ones corporate plan committees face. The complications specific to 403(b) plans, particularly the annuity contracts, are what we spend the extra time on.
If your organization has a plan nobody has looked at recently, a review is a short and unintimidating place to begin.
Common questions
Questions from boards
Yes. They are separate engagements, and plenty of organizations start with one. Some boards bring us in on the investment side first and look at the 403(b) a year later, or never. It happens in the other order just as often.
It depends on the type of employer and how the plan is structured. Governmental plans and certain church plans are treated differently from other nonprofit plans. Either way, prudent oversight and documented process are the right standard, and state law or your own plan documents may impose additional duties.
Read what you have. Whether the policy statement still matches what the board intends, whether the fees are reasonable for what the organization receives, whether the manager has been assessed against stated criteria rather than retained out of habit, and whether the minutes would show a prudent process to somebody reading them years later.
Fiduciary status follows function, so it attaches to whoever exercises discretion over the plan. That can include board members and staff who make plan decisions. A written committee charter clarifies who holds the role rather than leaving it ambiguous across the whole board.
Sometimes. It depends on the contract terms, surrender charges, and whether individual participant consent is required. The fiduciary obligation is to examine the arrangement and reach a documented, reasoned conclusion, which is not the same as moving every legacy contract.
The duties do not scale down with headcount, and small plans often carry worse pricing. What changes with size is the effort involved. A committee of two with a one-page charter and an annual documented review is a reasonable structure for a small nonprofit.
Yes. Plenty of nonprofits sponsor a 401(k) rather than a 403(b), and some run both from different eras of the organization. The oversight work is the same, and consolidating two plans is often part of the first year.
Next step
Bring the plan nobody has reviewed
A plan review gives your board an all-in cost figure, a benchmark, and a written record of the process. That last part is the one that matters under examination.