Non Profits Offer Wide Retirement Plan Coverage

February 20, 2003 (PLANSPONSOR.com) - Nonprofit workers are more likely to have access to a retirement savings program than those in the private sector and, in some cases, may even have more than one type from which to choose.

That was the result of a survey by the  NonProfit Times and Flynn Research in which 87% of the respondents said their firm sponsored a retirement plan – significantly above the 50% national average for all employers, according to the US Department of Labor (DoL).

Some 18% of respondents said they had access to a traditional defined benefit pension plan, while more than nine out of 10 could participate in a defined contribution plan. Some 13% said their company offered both.

More than two-thirds of defined contribution plans were 403(b) plans, which were created for public educational institutions and tax-exempt 501(c)(3) organizations, and 22% were 401(k) plans, according to the survey. The remaining 10% of plans included 457, 457(b), and simple IRA plans.

One trend in pension plans is to provide a cash balance plan in which employers establish an account with a percentage of a worker’s salary plus interest accrued each year. When the employee leaves the firm, the worker receives either a lump sum or annuity payout. The employer assumes the investment risk of cash balance plans. More than one-third of respondents to the NPT 2003 Pension Survey offered cash balance plans in 2002.

Vesting Schedules

Respondents indicated that workers qualified to join their employer’s defined benefit plan after an average of 1.9 years of employment. Some 80% of the organizations offering defined contribution plans make employer contributions.   On average, workers acquire full rights to those employer contributions after 5.7 years, the range being from immediate to eight years to vest.

According to the survey results, 41% of the pension plans offered by respondents required mandatory employee participation while 57% offered voluntary participation. The remaining 2% had both mandatory and voluntary enrollment policies by virtue of an organization offering both defined benefit and contribution plans.

The executives reported that 79% of plans were fully funded in 2002, and 16% were underfunded. The remaining 5% of respondents did not answer the funding question.

Respondents were also asked about the types of funds included in their pension portfolio, which determines the election options of workers. The findings indicate that more than three-quarters of organizations included equities, 70% included bonds, and 39% included socially screened investment funds.

The poll involved 239 nonprofit firms drawn from among NonProfit Times subscribers during August 2002.

«