Employer Match Contributions Causing Stress for Non-profits

November 10, 2009 (PLANSPONSOR.com) - A report by the Johns Hopkins University's Listening Post Project concludes that many nonprofit organizations are having major problems trying to sustain the benefits they provide employees through retirement plans.

According to the report, 58% of organizations that offer defined contribution pension plans such as 403(b) plans said their programs are currently “under stress.” Eighteen percent of those offering defined contribution plans said this stress was “severe” or “very severe.”

One major source of the stress seems to be the employer match. According to the report, 86% of organizations with defined contribution plans indicated that they make some type of employer match, and 60% of organizations with employer matches noted that their defined contribution plan is currently under stress. By contrast, only 40% of organizations that do not offer such matches reported that their plan is under stress.

In the past year, 14% of respondents offering a match have reduced it, and another 3% have eliminated their match altogether.

The data also hints at another issue nonprofits are dealing with: low employee participation in nonprofit retirement benefit plans, “as low wages, particularly in a depressed economy, make the option of directing wages towards retirement too prohibitive.”

The report, “Escalating Pension Benefit Costs: Another Threat to Nonprofit Survival?” is here .

Seventy-six percent of surveyed nonprofit organizations that offer defined benefit pension plans said that their plans are currently "under stress," according to a report by the Johns Hopkins University's Listening Post Project. Forty-three percent of those with defined-benefit plans said the stress was "severe" or "very severe."

Nonprofits and other employers are pressing for legislation that will temporarily give them more time to bring their pension plans back to fully funded status (see Funding Relief, PBGC Improvements Called for in HELP Committee Hearing ).

The report said that between 2007 and 2008, average defined benefit plan pension costs faced by nonprofit groups increased by 6%, which is double the inflation rate. "What is more, these organizations' average unfunded liability more than doubled, jumping from $658,104 in FY 2007 to nearly $1.4-million in FY 2008," the report said.

Twenty-eight percent of nonprofit groups that sponsor a defined-benefit plan have prohibited new employees from participating, while 22% of groups have ended future benefit accruals for all participating employees and another 9% have blocked future benefit accruals for some workers.