Perks of Switching from a 403(b) to a 401(k) for Non-Profits
Although there are benefits to having a 403(b) plan, there are also perks of transitioning from a 403(b) plan to a 401(k) plan for non-profit organizations. The benefits include access to a wider range of investment choices, simplified administration processes, potential cost savings, flexibility in employer contributions, and the establishment of consistent retirement benefit structures for all employees.
The decision to switch should be based on the organization’s specific needs and legal requirements, and seeking guidance from retirement plan specialists and financial advisors is recommended. It’s important to consider the specific needs and legal requirements of the organization before making any decisions. Seeking guidance from retirement plan specialists and financial advisors can help determine the best course of action.
At the conclusion of The Plan Sponsor University (TPSU) Fiduciary Education Program held at Loyola University in Baltimore, Maryland, Founder and CEO Fred Barstein speaks with Plan Sponsor Janet, a Chief Financial Officer for a non-profit organization of about 25 employees. In this conversation, Janet explains that they switched from a 403(b) plan to a 401(k)-plan due to downsizing their organization and the associated audit expenses. The 403(b)-plan had multiple contracts, including those of terminated employees, which required ongoing management. The transition to the 401(k) plan was a lot of work, involving tracking employees with contracts and updating beneficiary information. However, now that the conversion is complete, they have a better understanding and control over their retirement plan. Fred also mentions the potential cost benefits of using collective trusts in a 401(k) plan, which Janet expresses interest in exploring further with her advisor.
Read the Full Transcript Here:
Fred Barstein:
This is Fred Barstein with 401kTV. I am here in Baltimore or just outside at Loyola University where we just completed a TPSU Program, and I’m here with Janet. Welcome, Janet.
Janet:
Welcome. Thank you for having me.
Fred Barstein:
Is it okay if I ask you a few questions today?
Janet:
Absolutely.
Fred Barstein:
Thank you. So, before we do, a little bit about the size of your organization and your role.
Janet:
Okay. The organization I work for is a nonprofit organization. We’re about 25 employees, and I’m the CFO.
Fred Barstein:
CFO? Okay, great. So, one of the things you said you went through is you went from a 403(b) to a 401(k). Why did you do that?
Janet:
It was very important for us to do it because we had downsized the organization, so in terms of the number of employees that we had, decreased significantly. And therefore a 403(b) plan required an annual audit, which the number of employees that we currently had at that time did not match up with the actual number of contracts that we had in the 403(b) plan-
Fred Barstein:
I see.
Janet:
… which is making us to be susceptible to the audit.
Fred Barstein:
So you had an expense with [inaudible 00:01:17]?
Janet:
We had a huge expense for the audit.
Fred Barstein:
Right. And then you had all these different contracts too in the 403(b) you said?
Janet:
Yes. We had different contracts because many of our terminated employees still remain on our books. Many of them did not transfer right to their current employers, so we currently have to be responsible for every aspect of maintaining-
Fred Barstein:
To keep track of it?
Janet:
… to keep track of the assets.
Fred Barstein:
Was it a lot of work to make the change?
Janet:
It was a lot of work. Number one, we had to make sure that we tracked those employees that had the contract with us, and many of them have gone… The information that we had on them, we couldn’t reach them. Some of them have passed on, and so we had to depend on… Some of one of the things we learned today was updating the beneficiary sheet, which at that time was not quite the way it should be, so that was one of the challenges that we went through.
Fred Barstein:
Sure. So now is it good, was it worth it?
Janet:
Now, it’s good. The process was very detailing. It was very stressful, but now that we fully converted the 403(b) plan to the four 401(k) plan, I think that we have a better understanding of who we are dealing with, what we are dealing with, and we believe we have a better handle.
Fred Barstein:
Right. And also, one of the things, I don’t know if you know that 403(b) plans can’t use collective trusts, 401(k) can, and the collective trusts are tending to be much less expensive than a mutual fund, so now you can get collective trust, so you should ask your advisor about that.
Janet:
Yeah, definitely. I’ll follow up on that.
Fred Barstein:
So just a couple of things you learned here that you may want to implement when you go back to the office?
Janet:
One great thing, many of course, not just one, but I think on top of my list is the importance of updating the beneficiary sheet Because without that, that’s really not good for the employees. It’s not good for the employer. It wouldn’t showcase that we are doing our own housekeeping, which was one good thing that I learned. The other piece that I learned is about being fiduciary responsible for the plan. I feel that there’s gap in our knowledge or our preparedness to step up to that role, and I think this conference is really, really helpful. It’s an eyeopener. I will encourage everyone that’s already doing it to just sit back and pause, what do you really know? We learned about cybersecurity and today how information can easily be taken away and the employer will be responsible. So I mean, this is just the beginning for me, and I know that we have layers of layers of knowledge to acquire as we go on.
Fred Barstein:
Yes. Very good. Well put. Thank you, Janet. I know why I picked you for the video now.
Janet:
Thank you.
Fred Barstein:
Thank you. And thank you for watching 401kTV. Please stay tuned.
