What You Should Know About Nonprofit Retirement Plans
I was a guest recently on the Inspired Nonprofit Leadership podcast with Mary Hiland, and we discussed retirement plans in the nonprofit world. Our chat covered a wide array of topics focused on non-profit and culture:
How has the state of nonprofit benefits changed over time
What current nonprofit retirement plans look like
Matching, automatic enrollment and financial wellness
And other topics like 457b as a recruiting and retention tool and pitfalls to avoid
I so appreciate her perspective, having been in nonprofit leadership and tasked with fiduciary responsibilities – she’s a wealth of knowledge if you haven’t listened to her podcast before. Here’s the transcript of our conversation. Enjoy!
Opening Message (0s): Welcome to Inspired Nonprofit Leadership, where you'll hear insights and useful strategies, as well as lessons learned from other Nonprofit leaders and valuable tips from a variety of experts. Here to help you with the challenges and opportunities you face day after day is your host, Nonprofit leadership expert, Mary Hiland.
Mary (25s): Hello, inspired Nonprofit leaders and welcome to your go-to place for information and inspiration to help you be even more effective! I'm your host, Mary Hiland, and you're listening to Inspired Nonprofit Leadership. My guest for this episode is Courtenay Shipley. Courtenay is the founder and chief Planologist of Retirement Planology, a consulting and registered investment advisory firm for corporate-sponsored retirement plans.
With a wealth of experience in the retirement plan industry, Courtenay not only offers her clients expertise in investment analysis, plan design, and employee education but also helps them leverage their employee benefits in a way that supports their own business goals. Courtenay works with qualified retirement plans, developed strategies for third-party administrators, and conducted over 10,000 educational meetings.
She holds various designations including Accredited Investment Fiduciary, Chartered Retirement Plan Specialist, Certified Plan Fiduciary Advisor, and Certified Exit Planning Advisor. She's also the esteemed president of the Retirement Advisor Council, and her outstanding contributions have earned her accolades such as Top Women Advisor, NAPA Young Gun, and FT Top Gun 401 Advisor. Well, welcome, Courtenay. It's a pleasure to have you here.
Courtenay (2m 6s): Thank you, Mary. I'm delighted to be here.
Mary (2m 10s): Well, one of the things I wanna ask you to share before we get into some of the specific questions that deal with your expertise is a little bit about you personally, because we, in the introduction, I talked a lot about your professional expertise and also a little about your experience with nonprofits.
Courtenay (2m 30s): Yeah, absolutely. So my home is in Washington, DC That's where me and my husband and my darling five-year-old son live, with our crazy dog. And we really enjoy living here. And you know, it's an area that's very strong and deep in nonprofits, as you can imagine. About 35% of our client base are nonprofits. And so over the years, I actually came straight out of college from Vanderbilt University and into the 403b space, working with retirement plans for Nonprofit and government entities. That was where I cut my teeth, believe it or not, and came over to the 401k side several years later. And that just developed into retirement plans of all types.
Mary (3m 20s): Oh, great. Well, good. So, you know, given your experience, how has the state of benefits in nonprofits evolved from your perspective?
Courtenay (3m 32s): You know, I think if we were having this conversation 10 years ago, I think we would've focused on innovation and how the smarter nonprofits were taking a more innovative stance. But we're having this conversation now post-COVID. And so beginning in 2020, we started to see this trend, there was a USI survey on nonprofits; their benchmarking report and, it was talking about how 7 out of 10 employees felt like they relied on or needed their employer to help them understand and be healthy and financially well.
So we started to see this trend of looking more towards their employer as the basis for helping them with their benefits, with not just their financial wellness, but also the rest of their wellness. And about 62% said that they thought it was their employer's responsibility. So we've definitely seen this shift. I believe it was set off by COVID and also the younger generation in general, we're seeing that this is more of a trend, that they're more reliant on what their employers put in place as defaults for how they ought to do things.
And we're also seeing, as recently as 2022, there was another survey done in October by Franklin Templeton just on all types of retirement plans and how people felt about financial wellness. And we saw the same trends echoed again, that they're looking towards their employer for a more personalized approach for their financial and other types of wellness. So that's the biggest trend we're seeing.
Mary (5m 15s): If the employer doesn't, typically they don't have expertise in this area, so this is a great opportunity for a company like yours, I imagine, to provide those educational sessions you were talking about.
Courtenay (5m 32s): Yes, I would definitely agree with that. We have always offered one-on-one meetings with employees and found that that is the most effective way, it's also the most expensive way too, because you're pulling people off the job, right? But that is the best way to get them to understand what types of decisions they're making when it relates to their finances.
And with the employer being the epicenter of their financial wellness, you know, they're providing their paycheck, they're providing basic benefits in case something happens, they're unable to go to work or a health reason, that's disability. If they are no longer around and someone depends on their paycheck, that's the life insurance aspect of things. And then there's the, “How will I make my paycheck in the future?” and that's where that 401k or 403b tends to come in.
And so when you circle it back around, it's important for them to understand how all those pieces fit together. And yes, that is definitely something that we have been seeing a lot more interest in and a lot more uptake in.
Mary (6m 33s): Well, of course, I'm going to date myself terribly now, but I think I've already done that several times on the podcast. When I was working for nonprofits, I've been consulting for 20 years, and I was an executive for 26 years. So you, you know, kind of do the math! Early on, retirement was not something nonprofits were offering.
They didn't have the funds or they thought they didn't have the funds. I had the benefit of eventually, before I left the sector, being offered retirement benefits, but they were really few and far between. There wasn't really any education at all. So things have come a long way. And I would assume that nonprofit staff expects a retirement benefit. Is that your experience, is it very pervasive in the sector? Do you think it's standard?
Courtenay (7m 32s): Yes. I would say it's standard fare now. If you don't offer a retirement plan, I think it's a bit of a surprise for most employees or for most candidates, shall I say, who would be coming to work for you. So it is an attractive benefit. It's considered to be table stakes and part of the rest of your benefits package.
Mary (7m 53s): Would you, and you know I realize there must be lots of different types of plans and, I was gonna talk about some other questions about how this affects employee engagement and retention, but before we get into that; what are the different kinds of retirement plans? Do employers always contribute and match, or what do you see as the typical, if there is one, scenario in a nonprofit for what the retirement plan or offer looks like?
Courtenay (8m 28s): Yeah, it's a contributory plan, meaning that the employee is allowed to contribute and the employer is allowed to contribute to it. The defined benefit plans, the pension plans, those have pretty much gone the way of the dinosaur. But we are seeing, of course, the contributory plans. So we have the 403b and the 401k, and those are just tax codes. We should do a better job labeling them so they sound like they're exciting to use. Right?
Mary (8m 56s): But at least clear! What the heck is that, you know?
Courtenay (8m 59s): Right! Basically, it's a tax advantage plan that allows you to save some money for retirement and has some special tax perks that go with it. And so you asked if it was common for the employer to contribute, and the answer is definitely yes, especially in the nonprofit sector. The most common match is dollar for dollar up to 4%. So the employer puts money in if you, as the employee, put money in. And I'd say, the second most common way that we see an employer contribution being made is that they give 3% to everybody, whether or not they decide to contribute to the plan themselves.
Mary (9m 37s): Oh.
Courtenay (9m 37s): Those are the two top ones that we've seen. But yes, it is pretty common. I would say that the majority of nonprofits are definitely giving some sort of contribution towards it.
Mary (9m 48s): Okay. Then another question that comes up is, do you find, because I was surprised when I was an executive and we did offer something like this, a contributory plan but it wasn't mandatory, but it was like, if employees provide you know, contribute, then we would match. What about, do you see that very many employees choose not to contribute and give up the opportunity of this benefit? Or is it pretty, pretty common that they take advantage of it?
Courtenay (10m 25s): Well, you would be surprised! But the national average –
Mary (10m 29s): That's why, I guess. I was surprised then, and I wondered if it's changed!
Courtenay (10m 33s): The national average for participation in retirement plans still hovers around the 75% mark. So there is still a chunk of people who are not contributing for retirement, for whatever reason. Right now, I would say that that is becoming less common, the numbers are going up as employers are adding what is called Automatic Enrollment. So as an employee joins their firm, they're automatically enrolled in their retirement plan. And that takes away the inertia. “I meant to enroll, but I never filled out the form” or “I forgot to bring it back and give it to HR.” So it takes that piece out of the equation. So when we put Automatic Enrollment in place, we see much higher participation rates around even as high as like the 90 to 95% mark.
Mary (11m 28s): Okay. So even with a mandatory contribution attached to that? Okay, well that's really interesting that the signing up is the obstacle more than the contribution.
Courtenay (11m 42s): Yes. And the employee can always opt out. Right? They're just nudging them in the right direction. And so those are the types of behavioral changes that we're seeing trend-wise to try to help people get to the right decision. Maybe with a little help.
Mary (12m 0s): Well, given where I am in my life and retirement is probably not too far away, although there's gonna be certain things I'm doing that I probably will never let go of, including this podcast. But I just wanna say to our listeners, if you're in a situation where you're not contributing, I really encourage you to stretch, stretch, stretch. Because when you start when you're young, especially a small amount, it's amazing how that financial contribution multiplies over time, and that time goes fast.
So I've seen incredible benefits personally from having made the decision when I was much younger, to make a contribution as much as I could. I was a single mom when I was working for nonprofits and I didn't have the opportunity before I became an executive director, which was most of my career anyway. But it still was a stretch, as I'm sure it is for many nonprofit staff.
But it's a stretch that is just so worth your making because the time goes by so fast and those contributions multiply incredibly, it's a lot harder to get that when you're not starting until you're, you know, middle-aged or whatever you choose to do. So anyway, sorry to be preaching about that, but I just think it's so important because our financial futures, as we all know, you know, we don't have those guaranteed pensions, we never did in the Nonprofit sector that I'm aware of. But you know, you just never know. So planning ahead is a mantra that I really believe in.
Courtenay (13m 49s): And, like you said, you know, everyone's going to have a different definition of retirement. You said there was, there would be some things that maybe you will continue to do, and that's true of a lot of people. We are seeing that folks don't want to completely disconnect from work – that they either like it because of the social aspect or they enjoy giving back. And I think nonprofits can definitely be the benefactor of that when you have maybe employees who just wanna take a step back as far as the number of hours that they work, but they still have all that institutional knowledge.
So I think there's a lot of room for lots of different definitions of retirement, but at the end of the day, it's just the luxury to decide how you spend your time later in life. So that could be working or not working.
Mary (14m 36s): Now I imagine, you know, that it's pretty, you know, that we can assume that having a retirement plan is a benefit that employees appreciate and it helps with retention, maybe engagement, not so sure about that. What's your experience with that? Is there anything unusual or surprising that you find around the impact that having a retirement plan in a nonprofit makes?
Courtenay (15m 11s): So there are different aspects to consider. One is that there's the culture of the nonprofit, and this is part of that. The money that has been contributed is part of the benefits package. It's part of the generosity, but it's also part of what we want employees to feel and do when they're working at that nonprofit. So it is an extension of the company culture for sure. As such, when you think about how you educate people around it, we don't want you to work here forever, we want you to have a wonderful life that you design. And so this is one of the things that you need to be thinking about. That's a different type of conversation than, here's your paper, here's the form, please sign up.
So it's more like how you treat it that makes the biggest difference. From a retention standpoint, we have seen where folks will attach, or nonprofits will attach a vesting schedule to the benefits that they offer. Or that they will, if it's a large enough organization, they'll have a service-based match. So the longer that your tenure is, the more you're receiving in match money. It may not be, you know, substantially different, but it is a difference.
So there are some little things like that, or even if there is, they're calling it a profit-sharing contribution, but it's really just at the end of the year, the Nonprofit has decided whether or not they can put a little extra towards the retirement plan in the form of what we would see at a for-profit company as being considered profit sharing or an impact that they had on the organization.
Mary (16m 54s): Bonus.
Courtenay (16m 55s): Like a bonus. Exactly. So it all ties together with the rest of how your compensation strategy is laid out and how you're retaining people. But what I will say is that for executive recruiting, we are seeing the 457b plan, which is an executive plan, focused specifically on just the top executives, and that is becoming more and more important.
Mary (17m 22s): Okay. Well, we're gonna take a break to hear from our sponsor, but I wanna come back and hear all about that. And then I also have an experience about that sort of end-of-year decision-making about how much to put in, that I think's important to be aware of. So we'll talk about that. So we'll be right back.
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Mary (19m 14s): Well, we are back and I am speaking with Courtenay Shipley all about retirement plans and employee benefits. And we were talking before the break about putting some extra money in at the end of the year and then we're gonna come back to these 457b plans and explain those a little more.
But we did a merger, I did a couple of mergers when I was a CEO, and, what we used to do in my nonprofit, is at the end of the year, because we were on a reimbursement basis, we had a government contract and we would decide, the board would decide, if there was any money that was extra, we had been good about our spending, that they might add something to the employee retirement benefit.
Well, when we did our merger, we found out that that was not legal unless the board decided at the beginning of the year and made a decision that was documented that any excess revenues were going to be used that way based on the contingency of what it looked like. But they had to decide ahead of time. They couldn't just in the moment, you know, me as the executive say, oh by the way, we have a little extra money here, what do you think about this? So, there was no police coming after us because of that. But it was something that I learned and share with other executives about the decision-making that the executive and the board makes about the money. Because you know, nonprofits, it's against the rules to have any kind of private inurement, that means any individuals benefiting financially. And so it can look like that if all of a sudden you're saying, oh, the money we have as a nonprofit, we've got some extra, we're going to give it to the staff versus invest it in our programs. So I don't know if you've had any experience with that, but that's just my 2 cents around that.
Courtenay (21m 35s): That's a great point. And you have to be very careful with how your plan is designed and how it's structured, particularly if you are dealing with government contracts or any sort of reimbursement, like what you were describing as well. So the most important thing that the board can have on their side in that situation is either just a crackerjack retirement record keeper/relationship manager who's gonna help with that. But really that's like our position as the Retirement Plan Advisor, to be there to find out ‘What are your goals,’ ‘What do you want to do with this plan,’ and ‘What is it supposed to do for you?’ Right. And then what are the limitations around what kinds of things and behaviors can you exercise, just like that. When do you have to make those decisions, we keep you out of bad IRS land and out of trouble. You know, no one likes to get a nastygram.
Mary (22m 32s): About these 457b programs. I don't think they had anything like that when I was an executive.
Courtenay (22m 40s): Well, during Covid we had a number of conversations with nonprofits who were searching for executives or who were trying to retain the ones that they had and keep them from jumping to another place. And so one of the things that nonprofits are allowed to sponsor is what's called a 457b plan. It's again, it's an executive plan so it's only for a finite, you know, 10 to 15% we'll call it, of the population, typically needs to be highly paid. And the board can make contributions to the plan so that the organization, through the board granting this, you can put vesting schedules on it. You can say, if you stay for three years, we'll give you this award in this plan. And so it gives the board a little bit more flexibility for the goals that they have in mind for recruiting over folks or retaining them. And if they have an executive who is closer to retirement age and is trying to catch up, they're gonna find that to be very valuable.
But I also think that if you have somebody who understands the value of these types of plans, that's going to be valuable to them too. The only caveat and the reason that these plans are allowed to exist, the IRS and DOL are okay with it, is that the money has to be considered “at risk.” So if the nonprofit were to go bankrupt, then that money is technically still on the books of the nonprofit. It is tagged for that employee in the future, but the employee hasn't received it yet. That's why they get the nice taxable benefit and if there is bankruptcy, then that would be subject to creditors. So it is something to keep in the back of your mind. But for stable organizations with good leadership and good board members, that shouldn't be that much of an issue.
Mary (24m 29s): As we talk a little bit about the board, is there anything in your experience that pops up when you think about boards and these plans? Do they like them? I mean, are they open to them? Is the board, can the board be an obstacle to the plan? What's the role of the board? What would you say about boards and retirement plans?
Courtenay (24m 55s): Boards and plans? Yes. Yes. Boards and plans. So we've seen boards who want to be very involved and we've seen those who do not. What is most typical for those we've worked with is that the board grants responsibility to the Retirement Plan Committee, the committee being made up of the CEO, HR, and CFO, those are the three typical positions. They're responsible for the day-to-day administration and handling of the plan. The board just needs to be informed of the activities that happened over the year or on a periodic basis so they can make sure that things are running the way that they're supposed to.
That can be done through the meeting minutes that like we as an advisor have on an ongoing basis with the committee, it can be done where a representative like the treasurer, maybe sits in on a meeting once a year. It could just be that an executive summary is sent at the end of the year. So it depends. But I would say by and large, most boards are not involved with the plans themselves unless it's the 457b and then they are weighing in on, you know, what kind of tools do we have for recruiting this executive? So there could be some back and forth in that conversation.
Mary (26m 13s): Okay. If the board and executive obviously choose a plan, this kind of begs the question, I don't wanna get off into investment too much, but you know, obviously the employee's money is being invested and so when the board chooses the Fiduciary or the plan and how that's gonna be managed, I know that boards in general, if they have any investments, whether they're endowments or what they might be, that having an investment committee can be very important. So you're overseeing the return, you're setting policies for how those things are invested. Is this a way that board members are involved with retirement plans or are those kinds of set up and when they choose the plan, they get what they get?
Courtenay (27m 10s): So the answer is, it varies. But it is not uncommon, so remember I just talked about the periodic updates about the plan. Typically with a 401k or 403b plan, there's an investment policy statement that the investment Advisor has, and it's going to outline the selection and monitoring for the investments that go in the plan. And if you think about how those plans are constructed, it's for employees at any point in their career to be able to make their own portfolio of investments, because remember, they're responsible for choosing their own, and they may get some help, they may also have some options in the plan that are more like a ‘do it for me’ situation. But those employees at any point in their employee lifecycle and as far as how far they are from retirement need to have a robust lineup to choose from. So it differs in how the lineup is selected for the retirement plan itself versus, how the endowment or, the other capital might be invested for the nonprofit. So there’s a difference there. But we have seen where the investment committee says, Hey, can we just see your reports? Can we look at the investment policy statement, show how those two align, and how we're monitoring things. And that's where it ends.
Mary (28m 36s): Okay, good. Let me just ask this question that you had suggested we might discuss, why are marginalized minority groups more likely to neglect using retirement plans?
Courtenay (29m 00s): There are a few reasons for this. I think the biggest one is bad marketing and bad communication. If you think about it, in the past when it was all about paper, who were the pictures of the people that were represented on them on the brochures?
Mary (29m 18s): Right
Courtenay (29m 19s): And if you don't see yourself represented, you think, well, maybe this isn't for me. There's also a different educational background when it comes to finances. So if you are someone who's more first-generation and your parents have a distrust for the banking system, you're going to hear about that, right? That's going to be something that you carry with you in the back of your mind. And so having different ways of communicating the same information is extremely important.
And this kind of goes back to what I was saying before about that more personalized support. There are also decision-making processes that are different. So for some cultures, they wanna bring in more family members to talk about and make decisions. And that's maybe unusual for other cultures. So the way that the information is conveyed, the amount of time they have to make the decision, and how that decision is made, all of those things come into play. But I think communication is probably one of the biggest problems that we've had, as well as the education piece.
Mary (30m 35s): Right. Well, and it makes sense to me that if we don't do a good job of building organizational cultures that really value DEI and really are recognizing how they need to be inclusive, that they're not gonna be very effective, particularly in this area, I would say would be something that would show up.
So as we're winding down here, actually Courtenay in our time together, is there anything else you wanna say when you think about putting together, say an educational program for employees in a nonprofit, what are some of the things that you make sure you cover? And then are there other things that you wanna make sure before we close the episode, that Executive Directors out there know about where to go for good information about this? So I know I just asked you two really loaded questions, so let's just do the first one first!
Courtenay (31m 46s): No problem. When you think about the retirement plan, there are multiple users. You have the staff who are tasked with figuring out how to administer it. You have the decision makers like the CEO who are saddled with figuring out how to make this work with the budget and the priorities and the culture and everything else. And then you have the employees and the employees need to see this as a valued benefit. They need to understand it, they need to appreciate it because you're spending all this time and money from leadership trying to offer a great plan. So it's really important for the employees to be able to make wise decisions. And in order to do that, they need to understand how this fits into their financial picture, how they should invest, and what's going to get them to the type of retirement and help them start thinking ahead. And, Fred Rogers told everybody they were special every day and so, I think everyone thinks that it's a good idea to have a personalized experience. So right or wrong, I think that that is the right way when it comes to financial wellness, because it's really hard to… you don't wanna disclose that information to your employer, necessarily about your own financial situation or whether or not you understand everything about your benefits. So it's really great for Executives and Executive Directors to lean on their providers to help with that level of information and counseling that the employees really need. That's how you create that valued benefit.
Mary (33m 23s): Yeah, I can see why that would be so important, because number one, you don't want the executive delivering those messages and having those conversations. {No!} Because it's too personal. Money is so personal for people. So to have that third party that can be viewed as objective and knowledgeable and again, back to what you were saying at the beginning, that one-on-one experience I think is just, I can't even imagine doing it another way, frankly. But I realize that there may be reasons why to do it another way.
Any last tips or comments? I do wanna ask you though, before we close about how to connect with you. But anything else you wanna offer before we do that?
Courtenay (34m 16s): Hmm. I think the last bit for executives is to make sure they surround themselves with people who are forward-thinking, and your benefits providers are part of that group.
Mary (34m 30s): Okay. Good. What's the best way for people to reach you if they want to learn more from you, Courtenay?
Courtenay (34m 40s): They can go to retirementplanology.com/learnmore, and that has a wealth of information on there for them to be able to connect with us. Also, they can connect with us on LinkedIn, that's another place where we put a lot of content. I call it our nerdy content place and also a lot of video content if that's a better way for people to consume. Just quick bites of information on updates and regulations and things like that.
Mary (35m 13s): Good. We will have links in the show notes. So, well Courtenay, thank you so much for your wisdom and your enthusiasm around this. And I hope that our listeners have really gained a lot of insight and hopefully motivation to think about how they can either strengthen this or bring it into their nonprofits. So thanks so much.
Courtenay (35m 38s): Thank you for having me and for leveraging your expertise and sharing it with everyone else!
Mary (35m 44s): Well, thank you, and thank you out there listening for all that you do to make our lives and our communities better. We so appreciate you. Take care of yourselves and be sure to listen in to the next episode of Inspired Nonprofit Leadership. Until then, all the best.
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