I'm the director of a small non-profit, and we're about to set up our first-ever retirement plan for our handful of employees. It will be a 403(b), the nonprofit version of a 401(k). We will probably work with TIAA-CREF, since several of our staff already have accounts there, either pensions from previous jobs or IRAs.My dilemma is this: I want to ensure the maximum benefit for employees (and I'm one of them), but I have to "sell" this to my Board, who are very nervous about being committed to an expenditure that they've avoided until now. So, do I recommend a set amount paid by the organizatin to each employee per year - either a flat sum, or a percentage of salary? Or, do I recommend that the Board match employee contributions - up to a certain dollar amount, or a percentage of salary? or some combination of the two? And what percentages are commonly used?I have little personal experience with this kind of account to draw on. What is commonly done, and what are the advantages/disadvantages to employee and to the organization?Thanks for any help you can give. I'm new to this Board, but not to the Fool.alix
If you get some statistics about other programs, it might make them feel better. They could see how others are handling it and decide if that makes it more palatable.Matching 50% of the first 10% is common. It is not so much, but it can grow for an employee quite nicely. There are other variations on the percentage. This does have a disadvantage of paying higher amounts with higher salaries. The flat sum system is quite easy. You simply contribute the amount. However, you may find it to be more expensive. On the match, you only match people who contribute. If you have a portion of your company that doesn't contribute, then you are, in effect saving money. I've never heard of a company that has 100% voluntary contribution. In my company, I routinely bring up the charts showing growth and "sell" the 401K to my co-workers, but many do not participate. The biggest drawback to the organization will be the manhours to work the new system. They will add costs to the contribution amount. I was reading recently that one place actually ends up with overtime to get the 401K matches to the investment company in a timely manner. If you are going with TIAA, ask them if they have details you could use. Good luck. Make sure you have a good index fund as an option and try to avoid annuities, they tend to be more expensive to the employee.fredinseoul
My husband's employer, a state college, doesn;t match his 403b (they do match his state pension program), and my last corporate employer didn't match the 401k. Not that I'm advocating you do this, but the matching isn't a required part of a 403b retirement program. I would start by picking up all expenses of the plan and then see what sort of match your CFO thinks your organization can afford. You could start with a small match the first year and increase it later. That would be better than starting with a bigger match and having to ratchet back later.
...do I recommend a set amount paid by the organizatin to each employee per year - either a flat sum, or a percentage of salary? Or, do I recommend that the Board match employee contributions - up to a certain dollar amount, or a percentage of salary? or some combination of the two? And what percentages are commonly used?My employer matches 50 cents on the dollar for the first 3%.Fredinseoul said:Matching 50% of the first 10% is common. It is not so much, but it can grow for an employee quite nicely. There are other variations on the percentage. This does have a disadvantage of paying higher amounts with higher salaries.Matching up to 10% sounds high to me, but perhaps that's because my boss is cheap ;-)I would frankly favor a plan that matches 100 cents on the dollar of a lower percentage (like 2-5%), and here's why:In our 401k, we often don't meet the federal rules for 'highly-compensated' employees, because all of our highly-compensated employees contribute, while only some of our lower-compensated employees do. When we don't meet the standards, the excess contributions are disallowed for the highly compensated employees. In some years this has resulted in 75% of my own 15% contribution being disallowed (ouch!)IMO, if you match 100% on the first percentages (like 2-5%), you are far more likely to be able to convince lower-compensated employees to participate when you point out that they are effectively doubling their money from day 1. Higher participation from the lower-compensated employees would result in a greater likelihood that you'll pass the federal test. It is also a better deal for the lower-compensated employees than a 50% match on the first 10%--not many on low salaries can afford to contribute 10% of their salary!One caveat: I don't know if 403b's are subject to the same Federal tests for highly-compensated employees.Here is a link to a Vanguard DC Plan Survey in PDF format--Page 29 shows participation rates for various groups, while Page 30 states that the median savings rate for plan participants is 6%. Pages 70 and 71 are of particular interest regarding employer matches:https://institutional2.vanguard.com/VGApp/iip/Research?Path=PUBRR&File=RetResHowAmericaSaves2004.jsp&FW_Activity=ArticleDetailActivity&FW_Event=articleDetail&IIP_INF=BRRetResHowAmericaSaves2004.jsp#2old
So, do I recommend a set amount paid by the organization to each employee per year - either a flat sum, or a percentage of salary? Or, do I recommend that the Board match employee contributions - up to a certain dollar amount, or a percentage of salary? or some combination of the two? And what percentages are commonly used?What is appropriate really depends on the other benefits that you have as far as pensions, bonuses, etc. My company is on the low end, given that we do not have a pension plan anymore, and matches 3% (50% of the first 6%). In pricing out what this will cost your organization, remember to take into account that many plans have a five year vesting period so that if you have anyone leave before they are vested, than you may retain part(but not all) of the matched part.As mentioned in a prior post it is still beneficial to the employees to be able to contribute to the plan even if there is no match because of the tax deductions and the ability to let your retirement money grow tax deferred. Arguments can be made that other retirement accounts should be funded first; but aggressive savers can easily max these out so even an unmatched 403(b) can be worthwhile depending on your specific situation. Once you have the 403(b) set up you can add a match sometime in the future if your board does not want to add a match now.If you have the choice please try to go with a plan with a reasonable annual fee to the organization but has good choices, instead of an "inexpensive" plan with not so good choices.Greg
Sell it in the same way you would sell anything. Make a cost-benefit argument. Costs include any company comatch and the expenses paid to the management institution . Benefits include any tax write-offs and the ability to attract/retain quality employees. Of course, if employee aquisition/retention is not a critical issue, this could undercut your argument.FuskieWho finds there are no standards or common elements; you simply need to figure out how to offer the maximum benefit for the least cost...
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |