Massachusetts House Bill to Establish State-Managed Retirement Plan for Nonprofit Organizations

Nonprofit organizations with and without retirement plans will benefit from House Bill 78, designed to establish a state-managed retirement plan for these groups. Retirement plans managed by the state treasurer will cut costs for nonprofits looking to set up a retirement plan and will help nonprofits gain access to lower fees and increased investment power. Massachusetts Nonprofit Network Executive Director David Magnani plans on testifying to the Joint Committee on Public Service on September 21 in support of the bill.

“A lot of small nonprofits don’t provide any retirement plan for their employees,” said David Magnani, executive director of the Massachusetts Nonprofit Network.  “It’s a hassle to set them up and there can be all kinds of administrative programs. The idea is that it would be much more efficient if the state could essentially create a big plan that anyone who wants can opt into.”

About the bill: The bill allows the state treasurer to implement and manage retirement plans for nonprofit organizations. The plan will create a trust with contributions from the nonprofit employer and employees. The state treasurer will solicit bids from practitioners, administrators, investment managers, and other entities to establish investment options for the plan. The law also creates a committee made up of members of the nonprofit community that will provide technical advice and input to the state treasurer.

To see the full text of the bill, visit http://www.mass.gov/legis/bills/house/186/ht00pdf/ht00078.pdf.

Who will benefit:
For a nonprofit, retirement benefits can seem like one more thing to have to squeeze into a limited budget at a time when funding is being slashed. A 2008 Nonprofit Finance Fund Survey showed 23% of Massachusetts nonprofits have reduced employee benefits in light of the economic recession.  A state-managed plan would save nonprofits the costs of setting up and administering retirement funds, including the time required to research which plan to offer.  Reports suggest 14 % of the state’s workforce is employed within the nonprofit sector. Retirement plans are offered by only 44 % of Massachusetts nonprofits that have an annual budget of less than $250,000.  These nonprofits cite organizational costs as the main reason fewer benefits are offered. More than 20% of nonprofit groups in Massachusetts identified retirement plans as the most important benefit to provide or improve, according to a 2008 employee benefit study.

Susan Egmont, of Egmont Associates, a Boston-based executive search firm for nonprofit organizations, said all of the groups she works with will benefit from a state-managed retirement plan. She cited a two-year-old foundation that pays good salary and some health insurance, but has no retirement plan at all. If nonprofits can’t offer benefits such as a retirement plan, “all our nonprofit sector employees will be clients in the future,” Egmont said.

Financial impact: According to the office of State Treasurer Timothy Cahill, costs to implementing the bill would be minimal. The office already has the infrastructure for the program in place with the Deferred Compensation SMART Plan, a program for state employees.  The Deferred Compensation department within the office of the state treasurer currently is already staffed, and it is estimated that an additional one or two staff members would be needed to oversee a defined contribution plan for nonprofit employees. The legislation calls for further analysis regarding the status of retirement programs available to nonprofit employees, so a more concrete cost estimate should be determined through the additional research.

Across the nation: Several states, including Connecticut, Maryland, Pennsylvania, Washington and Virginia, have introduced similar bills that propose using a state’s existing retirement or investment infrastructure to pool the investments of thousands of workers at small- and medium-sized businesses. At least nine states have pending legislation on this topic designed to help smaller businesses offer more competitive benefits with lower fees and professional fund management. No states have introduced legislation completely devoted to nonprofits like House Bill No. 78, according to Gary Burris, senior policy associate at the Economic Opportunity Institute.

About the MNN
After three years of planning, the MNN was launched in January 2007.  Its first is executive director, former State Senator David P. Magnani. The Massachusetts Nonprofit Network has currently has over 500 members.  Its mission is to increase capacity, build public awareness and advocate for nonprofit organizations.  More information about Massachusetts Nonprofit Network can be found at www.massnonprofitnet.org.