Non-Profit Retirement Plan setup

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bf0123
Posts: 79
Joined: Wed Jan 09, 2008 6:50 pm

Non-Profit Retirement Plan setup

Post by bf0123 »

Greetings,
I've been tasked with recommending to the Board of my wife's employer (a non-profit) which retirement plan they should create/adopt for their employees. This is a small non-profit -- I'd guess 3-10 employees will contribute. The employer will match, I believe 2-3%.

It will be important to minimize plan costs. However as a Boglehead, I also believe it is important to offer employees low-cost index funds in the plan. I guess two questions:
--is a 403b or 401k a better option?
--and which financial companies should I look at to manage this small employee plan?

Thanks in advance for any thoughts.
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JoeRetire
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Re: Non-Profit Retirement Plan setup

Post by JoeRetire »

bf0123 wrote: Fri Dec 03, 2021 2:43 pm I've been tasked with recommending to the Board of my wife's employer (a non-profit) which retirement plan they should create/adopt for their employees.
Seems odd. Why were you given this task?
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crefwatch
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Re: Non-Profit Retirement Plan setup

Post by crefwatch »

Is a 401(k) even possible for an NFP? Does your state have more than one type of NFP? Can you make sure that the plan is easily portable or roll-over able for employees who leave?

Unfortunately, it's likely that smaller employee bodies have higher fees.
pizzy
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Re: Non-Profit Retirement Plan setup

Post by pizzy »

bf0123 wrote: Fri Dec 03, 2021 2:43 pm Greetings,
I've been tasked with recommending to the Board of my wife's employer (a non-profit) which retirement plan they should create/adopt for their employees. This is a small non-profit -- I'd guess 3-10 employees will contribute. The employer will match, I believe 2-3%.

It will be important to minimize plan costs. However as a Boglehead, I also believe it is important to offer employees low-cost index funds in the plan. I guess two questions:
--is a 403b or 401k a better option?
--and which financial companies should I look at to manage this small employee plan?

Thanks in advance for any thoughts.
Are you a licensed finance professional? Or a regular joe that spends too much time on bogleheads.org like the rest of us? :wink:
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
Topic Author
bf0123
Posts: 79
Joined: Wed Jan 09, 2008 6:50 pm

Re: Non-Profit Retirement Plan setup

Post by bf0123 »

Few more pieces of info: due to law changes in last few years, NFPs are allowed to offer 401ks (or 403bs). 401ks usually offer more competitive rates...but there may be reasons to offer 403b. I'm not sure which route and am looking for advice.

And as for me, I'm no expert but I did sleep in a Holiday Inn express last night. I'm helping the NFP because they are a good org with small staff and minimal financial expertise. I came to this Board because, as long-time lurker, I find this the best place for all sorts of advice and experience.
fabdog
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Re: Non-Profit Retirement Plan setup

Post by fabdog »

pizzy
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Re: Non-Profit Retirement Plan setup

Post by pizzy »

bf0123 wrote: Fri Dec 03, 2021 2:58 pm I'm helping the NFP because they are a good org with small staff and minimal financial expertise.
Even more reason to get professional advice.
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
delamer
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Re: Non-Profit Retirement Plan setup

Post by delamer »

One of my adult children works for a small company with a SIMPLE IRA plan.

They are available for nonprofits too.
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ZWorkLess
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Re: Non-Profit Retirement Plan setup

Post by ZWorkLess »

With such a small group, I suggest considering a SIMPLE IRA. That's what we've done for our small business (about 15 employees, maybe 10-12 participants in the plan.) 401ks are very expensive per-participant if you have a very small plan. The SIMPLE IRA has essentially zero administrative costs.

It's very easy and inexpensive to set up. You can just call Vanguard and they can walk you through it.

IIRC, the only decisions you need to make are:

* What brokerage to choose (sounds like Vanguard and Fidelity are top picks on this board.)
* Match 3% or, IIRC, give 2% whether they contribute or not.
* Qualifications for the plan
-- employment duration (longest is 2 calendar years, I believe.)
-- earnings requirement for each year in that duration ($5000/yr is the max, I believe.)

That's all I recall being in the form (and I've done it half a dozen times now.)

We chose Vanguard, 3% match, 2 years, $5000/yr. That helps us avoid setting up accounts for folks who are short term employees and will barely contribute anything. (Most of our staff are long term, but we always have a few college kids who tend to come and go along with their tenure at the local university.)

Then there is one form you fill out to set up the plan legally and give a copy to each eligible employee and have them opt in or opt out. You have to do that 60+ days before the plan's beginning date. You have to re-do it every year forever. We have a Jan1 start date and so we give out that notice early in October.

Other than whatever paperwork you need to set up your end at the brokerage, that's about it as far as the set up process. You can probably get it done and into the 60 day waiting period within a couple weeks.

Record keeping is easy and smooth. We've been very happy with our SIMPLE.
Topic Author
bf0123
Posts: 79
Joined: Wed Jan 09, 2008 6:50 pm

Re: Non-Profit Retirement Plan setup

Post by bf0123 »

Thanks all, especially ZWorkLess for your thoughts and suggestions. I'll investigate the ideas you've sent along.
fortunefavored
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Re: Non-Profit Retirement Plan setup

Post by fortunefavored »

Couple of cheap 401k/403b providers for a small number of employees:

https://www.guideline.com/
https://www.employeefiduciary.com/
niagara_guy
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Re: Non-Profit Retirement Plan setup

Post by niagara_guy »

My understanding is that a non-profit must use a 403b. My view is that the 403b providers are crooks (high fees, high fund fees, hidden fees, bad service, dishonest, …) so be careful. Can you use a big provider like Fidelity or Vanguard? I think they are both reputable firms. You can PM me for my experience with 403b.
aristotelian
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Re: Non-Profit Retirement Plan setup

Post by aristotelian »

niagara_guy wrote: Sat Dec 04, 2021 10:22 am My understanding is that a non-profit must use a 403b. My view is that the 403b providers are crooks (high fees, high fund fees, hidden fees, bad service, dishonest, …) so be careful. Can you use a big provider like Fidelity or Vanguard? I think they are both reputable firms. You can PM me for my experience with 403b.
Might check out TIAA. Very popular in the nonprofit space. Not sure what they would offer for smaller companies but could be an option. 403b is just a type of plan meeting a set of requirements. There are a lot of bad ones but there is nothing inherently worse about 403b vs 401k.
crefwatch
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Re: Non-Profit Retirement Plan setup

Post by crefwatch »

niagara_guy wrote: Sat Dec 04, 2021 10:22 am There are a lot of bad ones but there is nothing inherently worse about 403b vs 401k.
Well, there are a lot of 403(b)'s where the default option is "No withdrawals until age 59 1/2", or "No withdrawals until separation from service." That's much less the case for 401(k)s, if they're possible at an NFP. I'm particularly thinking about rollovers to an IRA, if the former employee doesn't like the 403(b) you help select.

It's apparent from this board that there are bad 401(k)s, too.

Returning to the question of responsibility, I'd ask whether the NFP is indemnifying you, at least to the extent that they indemnify their Executive Director? Offering an informal opinion is different from making a specific recommendation. I'm really pleased that a tiny NFP is offering a retirement plan, and even contributing. But selecting a plan is an immense responsibility.

I will say that I came to regret suggesting TIAA at a place I worked (for a supplemental plan), because of their post-1987 evolution away from their customer-centric origins. That was partly market-driven and regulatory-driven, but my point is again, your responsibility.
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