Pension puzzle: Part 3

Nonprofits try to keep retirement plans simple.

[Editor’s note: This is the third article in a series on retirement plans for nonprofits.]

Todd Cohen

Wanting to make contributions to its 10 employees’ 403(b) plan, and recognizing that could require more work, the Connecticut Association of Nonprofits selected a “bundled” plan.

“I don’t have anybody here who can spend a couple of hours a week working on a pension plan,” says Ann Giliberto, chief operating officer of association.

The vendor, ING Retirement Plans, handles administration, and the association and employees can make contributions and changes online.

A key reason the University of Montana Foundation in Missoula selected a 403(b) plan administered by TIAA-CREF was the personal counseling the firm would provide for the $112 million-asset foundation’s 34 employees, says Ted Delaney, vice president for operations.

“It’s difficult for us as a fundraising organization for the campus to stay on top of all the regulations as they exist and are changed,” he says.

Bob Stewart, president and CEO of Access in San Diego, says that despite working for the nonprofit for more than 20 years, he will receive only minimal benefits from its 403(b) plan.

So the group’s board agreed to add a 457 plan that will pay him a lump sum when he retires in about five years.

A nonprofit can use a 457 plan to benefit a select group of highly compensated executives “and there’s not a lot of guidance as to how to select that group,” says Scott Dauenhauer, president of Meridian Wealth Management in Laguna Hills, Calif.

Defined Contributions

For 25 years, in addition to a 403(b) plan in which it matched half of employee contributions up to 6 percent of their salaries, the Foundation for the Carolinas in Charlotte, N.C., had a “defined benefit” plan to which it made all the contributions.

Employees received benefits from that plan only when they retired, had no say in how the funds were invested, and could not take the plan with them if they left the foundation for another employer.

The plan, based on the idea that employees would work for a single nonprofit until retirement, did not benefit younger employees or those employed for shorter periods because benefits generally were based on the last five years of employment, when employees typically earned the most, says Judy Kerns, senior vice president for finance.

The foundation, with 26 employees, replaced that plan a year ago with a “defined contribution” plan, offered by TIAA-CREF, to which it makes contributions in employees’ names.

Employees decide how to invest the funds, get quarterly reports from on the funds’ investment performance and, if they leave after working at least three years, can transfer retirement assets to their new employer’s plan.

The foundation no longer matches employee contributions to a separate 403(b) plan.

NEXT: Nonprofits consolidate vendor functions.

Other stories in series:

Part 1: Nonprofits face tough choices in selecting retirement plans.

Part 2: Nonprofit weigh retirement-plan options.

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