Overcoming Unique Retirement Challenges in the Non-Profit Sector

Non-profit workAnyone who works in Human Resources knows the positive effect offering high-quality employee benefit programs can have on a workforce. They attract the best potential candidates for new jobs and foster a sense of loyalty and support among current staff, to name a few. No matter the size or industry, administering employee benefits, particularly the retirement plan, can be a complicated process. While the same basic goal may apply to companies and organizations, non-profit organizations face unique challenges when ensuring their retirement plan benefit is the best fit for employees, as well as the organization. 

Staying Competitive 

Employees who work for non-profits are contributing to an important, overarching mission and they are certainly entitled to a retirement plan that is competitive. It's no secret that compensation at nonprofit organizations and trade associations are (sometimes) not as robust as at a for-profit institution, so an emphasis should be placed on offering a strong total benefits package. The retirement plan is a significant component to this. As retirement plan consultants, we feel that offering an employer contribution or match in your plan is really an important factor in whether the benefit is valued by employees. We know that cost can be an issue, which we'll discuss in more detail, but a match is a really great incentive to get your employees to save for their future. For most non-profits, it is key to benchmark your benefits package. Specifically, consider the following:

  • Match or Employer Contribution Structure: Are you matching 50% up to 6% or contributing 5% of pay to eligible employees' savings? Check how this compares with your peer organizations and top competitors. 
  • Match Eligibility & Vesting: In the private sector, it is frequent that employer matches coincide with employee eligibility. However, in 403(b) plans, a common design component is for employees to become match eligible only after 6 months or 1 year of employment. Vesting schedules may vary, but research whether yours is comparable to other industry benefit offerings. 
  • Communicating Your Employer Contributions to Employees: We find a lot of employees take for granted the matching and employer contribution in nonprofit plans. Lead advisor, Alex Assaley, points out: "Many employees of non-profit organizations don't seem to fully appreciate the tremendous match or employer contributions that are being provided until we walk them through a personalized retirement readiness calculation. It's when they see the impact that these dollars will have on their future ability to replace monthly income in retirement, that employees start to grasp the full benefit that is being offered."

Non-profits should perform these benchmarking reviews to ensure they are staying competitive and that their retirement plan aligns with their mission and vision. We focus on this each year during our strategic planning session as a way for the non-profit's Retirement Committee to prepare for the year. 

Cost of the Plan

Many organizations in the non-profit sector may be operating under the illusion that facilitating a top-notch retirement plan for employees just isn't in the cards for them because of one major barrier: cost. While pricing can definitely be an issue given the limited discretionary funds that may be available, this doesn't mean you can't give your employees the opportunity to save through a plan. While all plan structures (such as 401(k), 403(b), pension, etc.) pose certain fees and costs which are unavoidable, educating yourself on what these fees mean or having a consultant you trust walk you through the process can make a huge difference to the bottom line. This is something every type of employer should pay attention to, but even more so for non-profits and trade associations who are working within a limited budget. Record-keeping, expense ratios, advisory services, and legal counsel are all areas where expenses can arise, but they can be negotiated to ensure you are staying competitive. Examine who is "selling" to the plan. If it's sold by a broker or insurance company who does not work in a fiduciary role, then that could come with excessive and undisclosed fees. A good rule of thumb is that you should be benchmarking your plan's cost annually and analyzing services provided by your vendors with consistent frequency. 

Fiduciary Oversight

This is an area that can be a headache for everyone across the board. Keeping up with ERISA and IRS regulations and making sure you are in compliance with these laws is vitally important to your retirement plan, as well as difficult and time consuming. Nonprofit organizations face some special challenges here as well. As of a few years ago, anyone in charge of making decisions for a plan, whether it's a 401(k), 403(b) or 457(b), is considered a fiduciary and assumes liability for being a prudent expert. Creating a retirement committee at the organizational level can mitigate a lot of the stress that comes along with fiduciary responsibility. Executives and employees should comprise the committee, rather than Board members, which will allow for a special focus to be paid to overseeing the plan by monitoring investment performance, discussing how to improve retirement readiness, managing your education offering and conducting fee analyses.  This is a step that will ensure your organization is getting the greatest value out of the retirement plan. 

Helping Employees Understand the Value

Nonprofit employees were the most satisfied with their job, compared to federal employees and for-profit workers. Retirement saving satisfaction is another story, according to a survey from the Plan Sponsor Council of America, 79.1% of employees participated in their employer’s 403(b) plan. On top of that, because of this insecurity, about half of those surveyed said they would consider leaving the nonprofit sector. Getting people to save enough for retirement is a challenge for everyone, but clearly, for nonprofit employees it's an even bigger one. While you can't raise salaries in an instant, you can include financial wellness and employee education within your employee benefits package. Your consultant or vendor can offer one-on-one meetings for employees or presentations on specific topics such as Social Security, Budgeting, and Financial Planning. Develop an engaging communication strategy that will speak to your specific workforce, whether it's through email, video, or social media platforms.

If you're already working with a consultant, they should definitely address these options with you. Financial wellness programs are on the rise, and even if you can't raise salaries, helping your employees get the tools they need to manage their entire financial life can drastically improve their ability to save for retirement.