What Plan Sponsors need to know about retirement plans

Board members, CEOs, COO’s, Church Executive Pastors, Business Manages and HR Directors associated with Non-Profits are pretty much in the dark when it comes to their understanding of Retirement Plans. Often this includes those who are directly responsible for the oversight of their plan or charged with the responsibility of setting one up or finding a new vendor.

Occasionally, a man or woman who really knows the business emerges but not very often. The usual dialogue with Non-Profit leadership starts with, “I really do not understand much about retirement plans.” 403b retirement plans for nonprofits have been around since the 60’s with IRA’s showing up in the mid 70’s and 401k’s in the early 80’s. Prior to the enabling legislation bringing these defined contribution approaches to retirement into the main stream, Defined Contribution Plans similar to Social Security were the norm. 

Even today certain pundits lament the passing of Defined Benefit Plans characterizing them as a better option for employees than the defined contribution plans we have now. They often site the need for plan participants to actually participate in the plan as one of our societal problems. I clearly remember a conversation with a missionary couple who asked for a review of their retirement plan. The plan was put in place by a mission organization and the benefit calculated amounted to $13 per month for every year of service. So, calculating 30 years of service times $13 came to a monthly income of $390 per month. $390 per month was going to show up each and every month - that is until the couple starved to death. Even in the late 80’s, $390 was not enough!

When I calculated what the result might have been if the same amount had been contributed to a Defined Contribution Plan with average investment returns, the amount was more than double. Also, the balance in the account upon the passing of the couple would go to their heirs. Clearly a much better stewardship solution. But it does require the participants to be engaged. 

Here are the basics that an existing or prospective Plan Sponsor needs to know:

1. Retirement plans are governed by the regulations of two bodies; the Internal Revenue Service and the Department of Labor.
2. Beginning in 2009, the IRS determined that the employer is the responsible party to provide and oversee the set-up, implementation and oversight of the plan.
3. Towards that end, a plan document and summary plan description are required for each plan. Should such a document not exist, the IRS can and will assemble all documents and regular activities related to the plan and establish the plan design for those bits and pieces.
4. In prior times, you could update your plan documents every 5 years or so. Today they must be up to date at all times. Therefore, every time there is a change in the law or the regulations the document must be updated.
5. The plan document states all the applicable regulations and then outlines the elements of the specific plan design. 
6. The plan design details all of the important elements: Who is eligible to participate? When are they eligible to participate? And how much will be or can be contributed?
7. Then there are a number of other simpler decisions such as: Will loans be available? Will in-service distributions be allowed? and whether those with ministerial status can take distributions as part of their Housing Allowance after Retirement?
8. Deciding on the amount the ministry or nonprofit organization will contribute is the single biggest economic decision. Will the Plan Sponsor contribute and if so, how much, and/or will there be a matching component requiring the employee to contribute too?
9. Then there is the matter of the Investment menu: When the subject of a retirement plan comes up, most think first of the investments. While important, the Investments are only one of four major components to the plan: 
   1. The Investments: A menu of mutual funds or Exchange Traded Funds (ETFs) allowing the participants to invest well 
   2. Compliance and Plan Document issues referred to as Compliance or TPA services
   3. Recordkeeping: The tracking of all money in, all money out and accurately reporting the results of these activities. 
   4. Education: Helping all participants and the Plan Sponsor to participate and administer with confidence. 
10. The selection of the Vendor, TPA, Recordkeeping and Investment Advisory. These roles can be separate or contained in one provider. There are two main categories of providers: Insurance Companies and Independent TPA, Recordkeeping and Advisor firms. I am certainly biased but a firm such as Envoy Financial brings great flexibility and wide range of capabilities to the table. Specializing in Church and Faith Based Retirement Plans has significant advantages over large Insurance Companies.
11. How a plan is implemented and supported is important. Often how you start impacts how you finish. As a matter of fact, getting started is the single biggest determinant to how you will finish. 
12. Putting a Retirement Plan Oversight Committee in place is important for mid-size to larger organization. Leaving the oversight of a plan to only one or two people when there are 15-150 or more participants, is not a good idea. As the plan sponsor is the fiduciary to the plan, and charged with its oversight, even though a vendor or vendors will be doing the work, means that a group charged with oversight responsibility, meeting 3 or 4 times per year, and consulting with vendors is valuable, important, and yes, necessary. 

The twelve items outlined above compose the basics of how a 403(b), 403(b)7, or a 403(b)9 Church Plan is put in place and operates. The ongoing educational component underlies the long-term success of the plan.

A staff that is engaged, contributing and growing in their understanding and confidence about the funding of their future ministry is both blessed and will be a blessing to their family and to the growth of The Kingdom. 

There are two important books available if you’d like more insight into the why and the how of retirement planning. They are excellent resources for your leadership team, and all plan participants. You can download “Live with Meaning” and “Moving Forward: Putting your Future Funded Ministry in Motion” at www.BruceBruinsma.com. They are both available in print and Kindle format on Amazon. They were written with care and designed to be both a resource and encouragement to those in ministry - meaning all of us. 

Stay with us as our journey includes a lifetime of ministry.

Bruce