People who are drawn to the nonprofit sector are usually special people where character counts above all else. They are frequently paid below-market rates and work long hours, which the employee justifies by the positive impact of the work and the good offered to our community. However, as much as the nonprofit employees support their community, they are not supported in the same way when it comes to their retirement needs.
The Impact
A lot of times the impact of not having a retirement program is not a considering factor when it comes to someone joining a nonprofit. Small organizations may offer benefits like working from home and health insurance, but fail to address the long-term needs of their staff by offering a retirement plan.
When nonprofits do not offer retirement savings, they make it more difficult for their employees to consider retiring even when it may come necessary due to age, illness, or other reasons. The important work of nonprofit employees ought to be rewarded with the ability to retire with dignity after a career of service.
This is especially important since small nonprofits are typically staffed by people from the communities they serve. When this is the case, providing retirement plans can be seen as part of the organization’s broader mission to empower and enrich its community. Take, for example, the director of an organization that supports special needs families in the community. After committing to leading the organization and making an impact on the people they serve, she eventually had to leave a job she loved to find a career with better pay and benefits in order to support her own family. A lack of benefits leads to attrition, which ultimately hurts an organization’s ability to achieve its mission. Board members of these nonprofits need to support living wages and the ability of staff to save for retirement.
There is a Solution
The structure of government retirement programs supports the role of employers in facilitating retirement savings, so employers who neglect to set up employer-sponsored retirement plans put their employees at a distinct disadvantage. When employers set up retirement funds, participants can save up to $19,500 a year towards retirement in tax-advantaged accounts. Without an employer-sponsored retirement plan, staff must save on their own, typically through an Individual Retirement Account (IRA) that is capped at $6,000 per year. After this, they must resort to taxable savings, all without the guidance that typically accompanies work retirement plans.
In a 403(b), the nonprofit version of a 401(k) retirement account, employers deduct a certain portion of their employee’s paycheck and put it in an investment account. This amount of money is not subject to state or federal taxes, which is the central difference between a 403(b) and other forms of investing. (Income taxes are paid when money is withdrawn during retirement.)
Nonprofits can offer the opportunity needed for their employees to save for their futures. Retirement can seem non-essential when it’s far away, but it is extremely important when it comes time to step away from a career. A proper retirement plan will make a difference in how someone can enjoy the later years of life. Including the opportunity to travel, spend special moments with grandchildren, live in assisted living communities, or pay for needed medication.
It’s not difficult for nonprofits to start a retirement program. It simply takes the leadership to want one for their staff. Many retirement plans can be at no or very little cost for them to set up and start helping their employees save for retirement. When you take the first steps toward setting up a retirement program, consider education on personal finance as part of your professional development or ongoing offerings for your employees. If you can’t afford to do these things due to budgetary constraints, talk to your donors and supporters about increasing their gift amounts.
If you are a nonprofit that is interested in sponsoring a retirement plan for your deserving employees, ValuTeachers can help get you moving in the right direction.