“A 403(b) plan is a significant investment for nonprofit organizations and the second most popular defined-contribution plan available. While higher education and healthcare sectors make up the majority of 403(b) assets, this plan is also an attractive option for nonprofits of all sizes.
However, as a small nonprofit, you may face several challenges in managing a 403(b) plan, such as limited resources, time constraints, and staffing issues. Even researching, administering, and monitoring investments can be a daunting task for small and medium-sized nonprofits.
The complexity of managing a 403(b) plan often leads small nonprofits to default to larger providers, but this may not be the best option. We understand that time is a precious commodity for small nonprofit businesses. Therefore, we have compiled a comparison chart of the top 403(b) providers to help you make an informed decision without sacrificing valuable resources.”
Who are the largest 403(b) providers?
“PlanSponsor’s 2019 survey found TIAA to be the largest 403(b) provider, with Fidelity coming in at a distant second. While TIAA and Fidelity may appear to be the obvious choice for smaller nonprofits, large financial players typically cater to larger retirement plans. According to The New York Times, smaller nonprofits face difficulties in navigating retirement plan options, often defaulting to insurance companies due to their large sales teams.
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However, annuities suggested by insurance companies can be expensive, and employers may struggle to switch to other options down the line. This confusion surrounding retirement plans, coupled with high expenses from large providers, can pose roadblocks for small employers who want to offer a retirement savings option. Research by TIAA found that while three-quarters of all nonprofit employees had access to a retirement plan in 2012, this figure is skewed by big plans with many employees.”
Why a small nonprofit employer should consider a 401(k)
“For small nonprofits struggling to offer a retirement savings option, a 401(k) can be a viable alternative to a 403(b). New providers have emerged in the market catering to plans with fewer participants, automating administrative tasks and simplifying the enrollment process for both employers and employees. Some of these providers have mobile applications that allow employees to manage their retirement accounts easily and understand how their plan works.
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By offering a low-cost retirement plan and handling most of the administration, these new 401(k) providers make it possible for smaller nonprofits to provide a defined contribution plan. ForUsAll, one of the new players in the market, was featured in a New York Times article that highlighted the challenges faced by small nonprofits. The article explained how an executive of an education and research organization in Austin, Texas turned to ForUsAll when big 403(b) providers and insurance companies wouldn’t take on their small operation. As the organization’s executive director put it, “If you’re a small nonprofit with very few assets, nobody really cares.””
Some 401(k) Robo-advisors to check out
“For smaller nonprofits looking to provide a retirement savings option, the rise of new 401(k) providers is an exciting development. These innovative providers offer turnkey solutions that simplify plan administration and enrollment, making it easier for employees to participate in retirement savings. Financial media outlets have taken notice of the success of these companies, including ForUsAll, featured in The Wall Street Journal, The New York Times, and Employee Benefits Adviser.
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Betterment for Business and Human Interest, also highlighted in The Wall Street Journal and Employee Benefits Adviser; and Ubiquity and Guideline, noted in The New York Times and Employee Benefits Adviser, respectively. But with so many options available, how can nonprofits evaluate what’s right for them? A key factor to consider is whether to opt for a “Do it for me” or “Do it yourself” 401(k) plan, with the former being more turnkey but pricier.
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Nonprofits must also be prepared to navigate the complex regulatory landscape and investment evaluation process. For those seeking a more hands-off approach, working with a provider like ForUsAll can take the administrative and investment responsibilities off their plates. The ForUsAll plan automatically enrolls participants at a 6% deferral rate, with the option for automatic deferral increases of 1% each year, and handles payroll deductions and Form 5500 filings.”
Is a 403(b) or 401(k) the right option for your company?
“Are you a nonprofit organization considering offering a retirement plan for your employees? You’ll need to make some important decisions first. One of the first things to consider is whether to offer an ERISA or non-ERISA plan. While non-ERISA plans can be cheaper, they come with restrictions such as the inability to make employer contributions. A knowledgeable advisor can help you determine which option is best for your organization.
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Did you know that nonprofits can also offer a 401(k) plan? Although similar to the 403(b), there are some key differences to consider when choosing the best option for your organization. For example, a 403(b) allows long-time employees to contribute an extra $3,000 annually, but many companies can switch to a 401(k).
With so many factors to consider, it’s essential to have a trusted advisor by your side. They can guide you through the decision-making process and help you create a plan that best suits the needs of your employees while also being cost-effective for your organization.”
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