SIMPLE IRA providers for small nonprofit?

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teen persuasion
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SIMPLE IRA providers 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.
Last edited by teen persuasion on Fri Dec 07, 2018 11:23 pm, edited 1 time in total.

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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.

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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.

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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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Re: Best type of retirement plan for small nonprofit?

Post by teen persuasion » Fri Dec 07, 2018 1:01 pm

Bumping this to report on the meeting with Wells Fargo guy and his "financial consultant" associate.

It is a SIMPLE IRA plan he was promoting, with American Funds. They didn't bring a list of all American Funds for us to look at, just 3 target date funds (2025, 2035, 2045). When I asked about expense ratios and other fees, he mentioned Class A and C shares. Class A had front end fees, while C had an additional 1% expense ratio on top of the base ~.76% expense on the sample target date funds.


Those target date funds have 22 actively managed funds within each of them!


I'm less than thrilled with this option, but everyone else is intimidated enough by finances and investing that they are afraid of "going it alone" (both from the board side and the employee side) that they are somewhat swayed by the proffered hand-holding of WF. It was agreed that I should research other options like Fidelity, Schwab and Vanguard before a decision is made, but the board members present want to make sure it is maintainable into the future as employees change (i.e., doesn't depend on me running it).

The other employees are unsure about choosing their own funds - WF guy made sure to talk about how they'd talk with each of us privately, evaluate our desired risk level, etc. and recommend funds to invest in. One employee is late 20s, completely inexperienced in retirement and investing. Other is early 60s, has other bits and pieces from previous jobs, but uncertain about all of it. I'm willing to step up and talk with them about things, and did briefly after the WF people left, but the others mentioned several times that they just glazed over whenever financial topics came up, and they were obviously already at overload from the WF guy's broad discussions. Also, Xmas is looming in everyone's mind, so they don't want to think about it again until after Xmas (but they just want to GET IT DONE).

So, anyone have any experience with setting up a new employer SIMPLE IRA at Fidelity, Schwab, or Vanguard? Anywhere else to consider?

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Re: SIMPLE IRA providers for small nonprofit?

Post by teen persuasion » Mon Dec 10, 2018 9:49 am

TL;DR recap: Employer had a Wells Fargo associate talk to us about setting up a SIMPLE IRA. He proposed American Funds, with at least 1.76% ER. Board is open to me researching other, lower cost options.

Anyone with experience setting up a SIMPLE IRA thru Fidelity, Schwab, or Vanguard? Anywhere else I should consider?

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Re: SIMPLE IRA providers for small nonprofit?

Post by Cranberry » Mon Dec 10, 2018 10:50 am

After a year of lurking, I'm going to tentatively add a word here.

I have a SIMPLE IRA for a household employee, at Schwab. The employer side of the paperwork is straightforward. There's a set of rules - you mark your calender so you don't miss deposits and yearly form requirements. The account I set up lets the employee move the funds to an IRA after the account has been open 2 years.
The employee needed to open a brokerage account, which was a new experience for the employee. A bit intimidating, but customer service at Schwab was always helpful.
No account fees that I remember on the employer side, and I don't think there are any for the employee....but you can check on that.
Trading fees...again, you can check this, but I believe there is access to all the low-cost no-fee options. The employee needs to be willing to learn how to get around the Schwab website, and to call Schwab customer service if they need help.

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teen persuasion
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Re: SIMPLE IRA providers for small nonprofit?

Post by teen persuasion » Mon Dec 10, 2018 7:29 pm

Thank you for the information!

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Re: SIMPLE IRA providers for small nonprofit?

Post by TylerS7 » Mon Dec 10, 2018 8:42 pm

I run a SimpleIRA for my employees through Vanguard. I thought setting it up was pretty straightforward for both myself and my employees. I then let my payroll company know what percentage each employee is withholding and that I am doing up to 3% match, and each pay period they tell me how much to deposit in each of their accounts. My big problem with Vanguard is they won’t let me pay for the $25 per year per fund account fee with business checking account, it has to come out of the employees IRA. This fact alone would make me look around if I were to do it again. Vanguard has Target Date funds and LifeStratgety funds which were easily explained to my employees and I was comfortable guiding them to an appropriate fund out of those. Of course they offer plenty of other vanguard funds as well.

My girlfriends office offers a simpleIRA through American Funds very much like you described. The funds are definitely more expensive, but we found a fund in it that I could live with. I explained the front load fees to her, with their plan, as their group assets increase, the front load fees decrease. I want to say it dropped to 0.5% after they reached $250k and 0.25% after $500k. It will be 0.0% after they reach $1mil. This won’t apply to your company with only three contributors, at least not for quite a while, but it’s worth noting.

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Re: SIMPLE IRA providers for small nonprofit?

Post by niceguy7376 » Mon Dec 10, 2018 9:25 pm

teen persuasion wrote:
Mon Dec 10, 2018 9:49 am
Anyone with experience setting up a SIMPLE IRA thru Fidelity, Schwab, or Vanguard? Anywhere else I should consider?
We have a SIMPLE IRA at Fidelity for last 10+ years for a small company that had at times 10 employees but a max of 5 enrolled in the plan.
There are currently no fees charged by Fido. Previously it used to be $25/participant /year.
Employees CAN invest in any funds that Fido sells.

Employer needs to pay 3% match to only those employees that are contributing.

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teen persuasion
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Re: SIMPLE IRA providers for small nonprofit?

Post by teen persuasion » Mon Dec 10, 2018 9:34 pm

niceguy7376 wrote:
Mon Dec 10, 2018 9:25 pm
teen persuasion wrote:
Mon Dec 10, 2018 9:49 am
Anyone with experience setting up a SIMPLE IRA thru Fidelity, Schwab, or Vanguard? Anywhere else I should consider?
We have a SIMPLE IRA at Fidelity for last 10+ years for a small company that had at times 10 employees but a max of 5 enrolled in the plan.
There are currently no fees charged by Fido. Previously it used to be $25/participant /year.
Employees CAN invest in any funds that Fido sells.

Employer needs to pay 3% match to only those employees that are contributing.
Interesting, Fidelity's page specifically about SIMPLE IRAs says "Only certain fund families have mutual funds that are eligible investments for SIMPLE IRAs with no minimum initial investment requirement." The link for Fidelity's eligible investments has few index funds. https://fundresearch.fidelity.com/mutu ... estments

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Re: SIMPLE IRA providers for small nonprofit?

Post by niceguy7376 » Tue Dec 11, 2018 8:22 am

teen persuasion wrote:
Mon Dec 10, 2018 9:34 pm
Interesting, Fidelity's page specifically about SIMPLE IRAs says "Only certain fund families have mutual funds that are eligible investments for SIMPLE IRAs with no minimum initial investment requirement." The link for Fidelity's eligible investments has few index funds. https://fundresearch.fidelity.com/mutu ... estments
To be more clear and up to date, we have been invested in only Fido Index funds for so long.
When we opened, we were told that we can invest in any fund that they sell.
We are currently invested in their index funds only (though the symbols changed in the last few months).

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