Retirement Plans do not have to be complicated

When reference is made to a ministry’s or non-profit’s retirement plan, most of the eyes in the room glaze over.

For some, there is fear of not knowing, for others it is the fact of not caring, and for most, it is confusion over terms, investments, compliance and other rules.

The admin staff of most 501c3 organizations have one thing in common - they are overwhelmed, overworked, and often underpaid. There are certain conditions that preclude so many organizations from reviewing the retirement plan they have or even contemplating starting one.

I remember asking an individual client one time if he thought it would be a good idea to save some taxes?  His answer was confusing because he replied, “No, I don’t want any of that!” When you see it on paper you immediately recognize the absurdity of the answer. At a minimum, the answer should be, “tell me some more.” It is amazing to find great ideas ignored! The client probably thought I was asking him to buy something and whatever it was he did not want it. If I had not persisted, his bank account would have been much lower.

It is hard to get people’s attention, no matter what you are presenting.

Whenever I read about Paul’s time of ministry in Athens, I’m always a bit jealous because the Athenians were so open to hearing about something new. The fact, however, that they were not compelled by Paul’s message of Jesus was certainly their loss. But at least it seems that listening was part of their culture.

The elements

A Retirement plan is really pretty simple. There are four key elements of a defined benefit 401k, 403b, or 403b9 Church plans. I know, I just put three sets of IRS code references out there for your viewing pleasure. Don’t give up, read on.

Here are those elements:

1.     Investments

2.     Third Party Administration (compliance)

3.     Recordkeeping (tracking all money in and out and reporting on what happened and the status)

4.     Education

What may be a little confusing is that most vendors don’t do all four of those tasks. They often only do one or two of them. Consequently, when you interact with them, their focus is on their part of the puzzle and often minimizes the other parts.

Another barrier to understanding retirement plans is the preconception by many that the only important element in the plan is the investment menu. It is certainly important although no more than the 25% of the entire equation it represents.

Investment Policy Statement

One document I love is the Investment Policy Statement. Unfortunately, most plans do not have one and are at the mercy of the financial representatives to provide the investment options. With a clear and well thought out investment policy statement in place, assuming you have access to the total range of investment options, your investment menu stands a good chance of being a successful one. Especially if your vendor reviews the investments quarterly and matches their performance with the criteria set up in the Investment Policy Statement. If one investment fails you can then replace it with a new and better option. “Open Architecture” is what the industry calls having 100% of all the investment options available to a plan.

Costs

Following up on that thought, it is admittedly hard to get a handle on the true cost of those investments. And while we are talking about costs, often it is hard to know what the rest of the plan costs beyond the investments. I won’t belabor the point, but if the whole cost issue is confusing to you, make sure you work with or consult a vendor who provides all four of them, not just one, two, or three. You know you are getting the whole story because the vendor provides the whole service package and there is no other place to bury the fees.

Doing it right

The IRS is sticky about making sure you have proper plan documents. Along with the plan document which reflects the laws and regulations, it also details the decisions you’ve made about the plan. Who can participate, how old must they be, are there loans available, etc. The Plan Document lays out those items and the Summary Plan Description delivers them in a readable format to give to each participant. Know the truth and it will set you free - or at least give you a better retirement plan!

It is clearly important to work with a full-service vendor who will have your back on compliance issues. Every Board of Directors should be concerned about how the actual working of the plan conforms to law, regulations, and plan design. When the IRS comes to audit the plan, that is the first thing they will look for - are you doing what you are supposed to be doing?

Not much attention or thought is given to the recordkeeping function. It all operates behind the scenes and most assume what they don’t see is operating well. Most of the time you are right. Then there are the exceptions. Retirement Plans have costs and those fee schedules are important. What is even more important is checking to make sure that the fees or expenses being charged to the plan are the right ones. Not too much for sure, and to be fair, not too little.

Education

The next big focus for the Department of Labor is going to be on education. It may be a couple of years off, however, it is coming. What does the mean? You may be familiar with the term outcomes-based budgeting. Using this thought process, you’re concerned about outcomes and less about the path to get you there. Retirement education needs a lot of help.

As a country, we are not well prepared for the last 30 years of life. And preparing for it encompasses more than just money.

What will the Department of Labor be looking for? They will want to see an active education program with high participation and then the changed behavior that goes with it. In other words, real engagement with the issue and their future.

I’m personally excited about this theme coming at us. Envoy is uniquely suited to address the funding part of the retirement challenge with its Future Funded Ministry emphasis. Others, including myself, will be addressing the other elements of retirement preparation and what we need in this area of a Retirement Reformation. I’m looking forward to being a key spokesman in those other areas too.

Review

If you’ve made it this far, you have reason to believe that Retirement Plans have several components. When you think about it, each of the four components plays a role in delivering the financial support needed for a Future Funded Ministry plan:

Investments, Compliance, Recordkeeping, and Education. Put them all together and you have a retirement plan ready for many to participate and prepare for their future.

My hope is that this explanation will wipe away some of the confusion and apathy about the topic. More importantly, please make sure that your ministry or organization first has a plan that is faith-based and delivers on its promises to be both effective and efficient.

Have a great retirement day and stay with us as we journey together with Trusted Advice along The Way.

Bruce