Nonprofit Financial Management Topics: Choosing Retirement Plans for Your Employees

As the CFO of a nonprofit organization, you may be tasked with choosing the right retirement plan for your employees. Nonprofit financial management may also take into consideration helping employees plan for their financial future through sound investment strategies that capitalize on the time of the investment to grow their nest egg.

There are many solutions available today to help people plan and prepare for retirement. Let’s take a look at the pros and cons of several solutions to help you choose the right one for your workforce.

Nonprofit Financial Management Tips: Examining Retirement Planning

According to Time magazine, 1 in 3 Americans has nothing saved for retirement. Let that sink in for a minute: fully one-third of our workforce hasn’t saved anything for their retirement years!

This is a brewing crisis that, when it finally erupts, will have ramifications throughout the workforce. All of those who are entering retirement age need food, clothing, shelter, and medical care. Without savings or a retirement plan, these people will end up spending their golden years poorer than when they were working without hope of relief.

Types of Savings Plans: Simplified Employer Plans (SEP)

SEP plans can be used by an organization of any size. Employers can contribute up to the lesser of 25% of each qualified employee’s compensation or $55,000 for 2018. These contributions are tax-deductible as a business expense.

SEP plans are simple for companies to administer. There are no formal IRS forms needed after adopting such a plan, and administrative costs are minimal. To begin a SEP Plan, you must:

  1. Provide a written agreement to provide benefits to all eligible employees;
  2. Offer employees specific information about the agreement;
  3. Establish an IRA account for each employee.

The IRS has a model SEP plan document, Form 5305-SEPSimplified Employee Pension  Individual Retirement Accounts Contribution Agreement. However, not all employers can use Form 5305-SEP, and instead, some must use a prototype document. Speak with a nonprofit financial advisor if you are interested in starting a SEP for your organization.

Simplified IRAS

Another retirement plan you can offer your organization’s employees is an IRA. A SIMPLE (Savings Incentive Matching Plan for Employees) IRA requires that organizations choose a financial institution to manage and maintain their plan. Alternatively, you can let your employees choose the financial institution they wish to manage their account, but a third party, an accredited financial institution must be part of the account management strategy.

With a simple IRA, employees can defer a portion of their income into the IRA to save for retirement. These plans also require a smaller contribution on the part of the employer. By reducing their pre-taxable income, employees may receive additional benefits too from saving in a simple IRA.

IRS form 5304-SIMPLE and its accompanying instructions can guide you through this process.

403B Plans

403B plans offer several other additional methods of saving for retirement. Employees of schools, ministers, and certain tax-exempt institutions can offer 403 plans. These plans are tax-sheltered annuities (TSAs). Employee salary contributions are made pre-tax, so there are additional tax benefits from 403B plans analogous to some 401K plans in the for-profit sector. Income is taxed when it is withdrawn from the plan. Matching programs, in which an organization matches a percent of the money paid into the 403B plan by the employer, enables employees to grow their nest eggs faster towards retirement goals.

As you can see from this very brief nonprofit financial management guide to retirement plans, there’s no one size fits all solution to help your employees plan and save for retirement. Once you’ve chosen a plan and set it up to adhere with all pertinent IRS regulations, you’ll need to have a strong internal communications plan in place to help spread the word about the new retirement programs. The more publicity you can give to your organization’s retirement benefits, the greater the buy-in will be from the employees and the participation, too. You’ll help your organization attract and retain better employees by offering a valuable benefit while simultaneously helping more people prepare for their retirement. It’s a worthy endeavor and a worthwhile goal for any nonprofit organization.

Beck & Company

At Beck & Company, we work with many nonprofits to help them improve their operations, accounting, and overall management. We are Washington DC nonprofit advisors with a tradition of creative thinking, technical expertise, and a collaborative spirit that can help your nonprofit achieve its goals. Whether you want to increase donor confidence and support through transparent accounting practices or find a partner for your annual audit, we can help. Contact us today or call 703-834-0776.