Best type of retirement plan for small nonprofit?

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teen persuasion
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Best type of retirement plan for small nonprofit?

Post by teen persuasion » Fri Nov 09, 2018 11:40 am

My employer is FINALLY thinking about offering a retirement plan for employees. I'd like to help the board of trustees (all community volunteer), by doing the legwork on researching their options. If I can boil it down to an understandable set of options and pros/cons of each, they are much more likely to take concrete steps instead of pushing it off again.

Small employer, non-profit, small budget. So it must be 1.) Easy, 2.) Inexpensive.

The retirement plan options I've found so far (most are not appropriate, I know):
  • State pension plan - not eligible
    401(k)
    403(b)
    457
    SEP IRA - no employee contributions, so not what *I* want
    SIMPLE IRA
    SIMPLE 401(k) - never heard of this before, but seems rare
    Solo 401k - not appropriate
Any other options I've missed?

Which others would be inappropriate, and for what reasons?

Which would be the best contenders?

For those, who would be the best custodians to work with, and for access to low cost index funds, and low set-up and ongoing fees? Small here means 5 employees at most, possibly only 3. I'd be willing to take on some ongoing paperwork, etc. to manage it, but the board may view it as a conflict of interest for me as a staff member, unclear if it's an option.


As background, my employer has something of an endowment fund. It is actively managed by Wells Fargo. The director offhandedly mentioned maybe tossing the idea of a retirement plan to that manager to see what options he comes up with. After seeing the investments he has the endowment fund in, and his fees, I'm trying to prevent the board of trustees from just blindly handing this off to him, simply because they don't feel qualified to attempt a decision themselves due to lack of knowledge.

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Duckie
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Re: Best type of retirement plan for small nonprofit?

Post by Duckie » Fri Nov 09, 2018 8:05 pm

teen persuasion wrote:SIMPLE 401(k) - never heard of this before, but seems rare
It is rare. It has the disadvantage of the lower contribution limits of a SIMPLE IRA and the higher paperwork requirements of a 401k.
Any other options I've missed?
Yes, but none of the following would be useful in your case.
  • SARSEP
    Payroll Deduction IRAs
    Profit-Sharing
    Defined Benefit
    Money Purchase
    Employee Stock Ownership
Which others would be inappropriate, and for what reasons?
457 plans are usually government plans. If not, they're very restrictive.
Which would be the best contenders?
The only plans suitable are 401k, 403b, SEP IRA, and SIMPLE IRA.
  1. Employee Fiduciary offers low-cost 401k plans, but they're still a little more expensive than you might like. At least the employER doesn't have to match.
  2. 403b plans are specifically for tax-exempt non-profits, but finding a custodian with reasonable costs for your small size would be extremely difficult.
  3. SEP IRAs can be held at any custodian but the employER makes all the contributions.
  4. SIMPLE IRAs can also be held at any custodian. The employEE can contribute up to $12.5K for 2018 and the employER must match up to 3% in compensation. No contribution, no match.
Here's a comparison. And take a look at IRS Publication 560.
For those, who would be the best custodians to work with, and for access to low cost index funds, and low set-up and ongoing fees?
I'd open a SIMPLE IRA at Vanguard, Fidelity, or Schwab. This is the least difficult plan to operate.

Spirit Rider
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Re: Best type of retirement plan for small nonprofit?

Post by Spirit Rider » Fri Nov 09, 2018 8:52 pm

I second everything that @Duckie stated.

However, I would add that Vanguard charges each SIMPLE IRA participant an administrative fee of $25/fund/year. Fidelity recently removed all adminstrative fees for their SIMPLE IRA.

Another viable option for a small employer such as yours is Guideline's safe harbor 401k. There is a $500 start-up fee and $8/month/participant with a $40/month minimum. This would allow a larger employee elective contribution and only require 1% more employer match/year.

JGoneRiding
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Re: Best type of retirement plan for small nonprofit?

Post by JGoneRiding » Fri Nov 09, 2018 9:02 pm

If you are concerned they are already very worried about cost I would go with the simple. In addition to having the lowest employer admin fees I believe it fully removes them from any fiduciary responsibility.

While you can t contribuate as much as to a 401k they are required to have a match, they can t change the rules like in a 401k and get out of it.

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teen persuasion
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Re: Best type of retirement plan for small nonprofit?

Post by teen persuasion » Sat Nov 10, 2018 8:28 am

Thank you, everyone, for the thorough information, and for confirming my instincts.

I'm looking at information about SIMPLE IRAS at Fidelity, Schwab and Vanguard.

Fidelity says no setup and account fees, but a restricted list of fund families and funds available on those lists. I didn't see Vanguard on the list, so looked at Fidelity's fund list. I didn't see many low ER index funds, especially a total stock market type one.

Schwab also mentioned no setup and account fees, but mentioned "other" fees may apply, and the $4.95/trade fee. I'm not familiar with Schwab, is that $4.95 trade fee for payroll contributions to a retirement account?

Vanguard also has no setup fees, and the $25/fund mentioned by Spirit Rider. I believe I saw somewhere that this fee is waived if you have a large enough balance at Vanguard, Voyager status I believe. DH and I have Roth IRAs and DH has a rollover IRA at Vanguard, so we should be able to avoid the fees. Could be an issue for other coworkers. The list of approved funds looked acceptable - no Admiral, but I can live with Investor versions of Total Stock market, etc.

Anyone have experience with a SIMPLE IRA at these institutions?

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teen persuasion
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Re: Best type of retirement plan for small nonprofit?

Post by teen persuasion » Sat Nov 10, 2018 5:28 pm

The board treasurer dropped in to discuss the retirement plan situation. She has already talked with the Wells Fargo guy. He told her WF could create some kind of retirement account for us, but she didn't have a name for it, and had a very fuzzy handle on details. Something about we could only put 2% in the first year, but more later, there was a $1k minimum so WF would hold the contributions until we reached $1k (but then we'd get the "interest" we'd missed in the interim, so no downside)...

I asked if the employer was expecting to contribute a match (I hadn't actually expected they could afford to, but a comment from the director implied they might). No - as I thought, no $ for that. So a SIMPLE IRA isn't an option with no match.

The WF guy will be meeting with the staff to discuss his ideas. I'm skeptical, but I'll see what he's talking about.

JGoneRiding
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Re: Best type of retirement plan for small nonprofit?

Post by JGoneRiding » Sat Nov 10, 2018 5:50 pm

Point out that a simple ira allows THEM to contribute more. Otherwise they are also limited with out a plan.

We use Edward Jones which I realize is hated on here for some very legit reasons BUT it has the advantage of a local guy that can come and explain and they are very good about explaining which it sounds like your bosses need. It's also very cheap for the business but of course they do have to match. My husband's cheap boss agreed to sign up. They do have target funds and the like. You can rollover after 2 years.

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teen persuasion
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Re: Best type of retirement plan for small nonprofit?

Post by teen persuasion » Sat Nov 10, 2018 6:10 pm

The board are all unpaid volunteers. From what the treasurer said, it's likely to be only 3 staff participating: the director, myself, and another clerk (not the very part-time cleaning lady or maintenance/groundsperson). The decision to offer it is ultimately up to the board, who can't participate at all. So they make the offer, we take it or leave it. At least, now they ARE open to offering something, unlike the past board composition.

Spirit Rider
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Re: Best type of retirement plan for small nonprofit?

Post by Spirit Rider » Sat Nov 10, 2018 7:31 pm

@teen persuasion

I wonder if this isn't a SIMPLE IRA plan from WF and the board treasurer misunderstood/miscommunicated.

SIMPLE IRA plans require an employer contribution. It can either be a 2% non-elective contribution to all employees regardless if they contribute or up to a 3% match.

If they are reluctant to contribute up to 3% the first year. A SIMPLE IRA plan can match as low as 1% in two out of five years. This means they could kind of ease into the employer match. 1% the first year, 2% the second year and 3% for years 3-5. Then, there is a safety valve of reducing to 1% in two out of every five year if there are budgetary constraints.

I think the board treasurer missed the fact that the employees themselves can defer up to $13,000 in 2019.

Note: That the SIMPLE IRA notice date (11/2) for plans starting on 1/1/2019 has past, but all is not lost. It just means the plan will not be effective until 60 days after the notice period

P.S. I highly doubt that WF is the best choice for a SIMPLE IRA plan custodian.

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teen persuasion
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Re: Best type of retirement plan for small nonprofit?

Post by teen persuasion » Sat Nov 10, 2018 7:51 pm

:idea:

Thank you Spirit Rider - you may very well be right about what the treasurer got out of the conversation with the WF guy! That at least is a plausible explanation.

The treasurer IS determined to make sure the staff has access to a retirement plan, and she'd like it to take effect for 2019, so she's moving it along ASAP. I did ask about employee deferral, and yes she acknowledged that was the point. Indeed, the only point, since she admitted they didn't intend to do any matching. I wouldn't be surprised if the WF guy glossed over the mandatory match part, or didn't realize that was the board's intent, or just mangled the whole description (who the 1% was coming from).


Given what I've seen of the endowment portfolio managed by this guy at WF, I agree that we can almost certainly do better elsewhere. I need to get details, though, first.

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Re: Best type of retirement plan for small nonprofit?

Post by StopIroningShirts » Sat Nov 10, 2018 8:08 pm

I wanted to chime in on this since my wife was the former user of a *terrible* Simple IRA offered by a full-fee financial adviser. This was nine years ago, but the underlying fees were 2%+ with a front-load.

It *still* made sense for us to contribute to her max. The employer match was 3% and could offset the load then the Simple IRA allows in-service rollovers under defined periods. We did that a couple of times to get it out of the full fee adviser and into Fidelity.

Best of luck with helping your employer/volunteer treasurer. I'm the treasurer of a 13 employee not for profit and there is a lot of responsibility in the role

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