(b)lines Ask the Experts – Retirement Plans Allowed for Rural Cooperatives

“I am an adviser who primarily works with 403(b) plans. A potential client has surfaced that is like nothing I have ever seen before.

“It is a private “non-profit utility,” if you will; it provides electric service in my county in an area which presumably would not be profitable for a traditional utility to service since it is thinly populated. Have you ever heard of such an organization, and do you know what type of retirement plan it can sponsor? The entity sponsors a 401(k) currently but does not know if it is the best type of plan for them.” 

Michael A. Webb, vice president, Cammack Retirement Group, answers:

What you are describing appears to the Experts to be what is known as a “rural cooperative.” A rural cooperative is a tax-exempt entity that provides electric services either to the general public or on a cooperative basis via members who own units of the cooperative in exchange for providing services that contribute to the development of the entity. The entity can be public or private such as the one you are describing.

As for the type of plans it may sponsor, a rural cooperative is eligible to establish and maintain any type of qualified plan (401(k), 401(a), etc.). In addition, it may also sponsor 457(b) or 457(f) deferred compensation plan. However, one type of plan a rural cooperative may NOT sponsor is a 403(b) plan, as it is neither a 501(c)(3) charitable organization nor a public educational institution, and only those types of entities may establish and maintain a 403(b) plan.

Thank you for your question!


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.