Confero Fall 2014: A Focus on Non-Profit Organizations by Westminster Consulting

CONFERO A quarterly publication of Westminster Consulting

www.ConferoMag.com

ISSUE NO. 8

A FOCUS ON

NON-PROFIT

ORGANIZATIONS

ALSO:

Nonprofit Law Compliance An Interview with Terry Knapp Financial Security and Careers in the Nonprofit and Philanthropic Sector

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Features Fall Issue 2014 â&#x20AC;˘ Issue no. 8

FINANCIAL SECURITY AND CAREERS IN THE NONPROFIT AND PHILANTHROPIC SECTOR

A FOCUS ON NON-PROFIT ORGANIZATIONS

Key findings from a joint study by the TIAA-CREF Institute and Independent Sector.

In this article, Gabriel Potter gives a broad overview of non-profit organizations and the unique challenges they have to manage.

18 AGING AND AMERICA: DEMOGRAPHIC CHANGE AND ITS CONSEQUENCES FOR WORK AND RETIREMENT Key Findings from the 2012 report, Aging and the Macroeconomy: Long-Term Implications of an Older Population and the colloquium, Towards a Policy Agenda for an Aging America.

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Contents Fall Issue 2014 • Issue no. 8

ONE PAGE MAGAZINE

7 QUESTIONS

A brief overview of some recent events and notable discussions within the industry.

An Interview with Terry Knapp — Terry Knapp, the director of organizational development for Lollypop Farm, Humane Society of Greater Rochester, talks to Confero about life in the non-profit sector.

18 RES IPSA LOQUITOR

14 10

In Complying with the New Non-Profit Law, Don’t Forget the Tax Laws — This article discusses the Non-Profit Revitalization Act, how it interacts with the federal tax law, and why it is important for non-profits to take IRS rules into account.

2 | FALL 2014

IN EVERY ISSUE: 2 PUBLISHERS LETTER 3 CONTRIBUTORS 4 UPCOMING EVENTS

2014 CALENDAR

OCTOBER

The Outlook for The Outlook for The Outlook for The Outlook for Global Investing Global Investing Global Investing Global Investing Conference Conference Conference Conference

AIF Designation Training

Extended Deadline for Form 5500

ASPPA Annual ASPPA Annual ASPPA Annual ASPPA Annual Conference Conference Conference Conference

Chief Investment Officer Summit

31 Halloween

Chief Investment Officer Summit Australia October 30, 2014 The Langham Hotel | Melbourne, Austrailia 1

NOVEMBER

9 16 23

Leadership Development for HR Professionals

PHR/SPHR Certification Preparation

ASPPA17 Regional Conference: Cincinnati

ASPPA18 Regional Conference: Cincinnati

Leadership Development for HR Professionals

Thanksgiving

Deadline for Sending Annual QDIA Notice

7 14

DECEMBER

Leadership Development for HR Professionals

The CIO Summit Australia is in its fourth year and returning to Melbourne. Our mission: To help chief investment officers (CIOs) and their teams at superannuation and sovereign funds to innovate, optimize their portfolios and tackle the issues that face investors in Australia, New Zealand and Asia. www.ai-cio.com/event/CIOSAus2014/

CIO Industry Innovation Awards Extended15 Deadline for Distributing SAR to Participants

Liability Driven Investing Conference: Chicago

Liability Driven Investing Conference: NYC

Christmas Eve Christmas Day

Industry Innovation Awards December 8, 2014 New York Public Library | New York, NY For the fifth time in as many years, December brings CIOâ&#x20AC;&#x2122;s much-lauded Industry Innovation Awards. Held in New York City, this event highlights the most innovative and positive work being done for, and at, the worldâ&#x20AC;&#x2122;s largest pensions, endowments, foundations, and sovereign wealth funds. www.ai-cio.com/event/awardsny2014/

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PUBLISHER’S LETTER

CONFERO A quarterly publication by Westminster Consulting

A quarterly publication of fiduciary ideas by various contributors within the industry.

Publisher Westminster Consulting, LLC. Editor-In-Chief Gabriella Martinez Welcome to the Fall 2014 issue of Confero, an issue highlighting non-profit organizations. Operating and sustaining a non-profit organization requires a unique set of skill sets and present challenges that differ from their for-profit brethren. We all have had some experience with a particular agency or social service entity that we know significantly impacts our respective community. Those organizations exist and are supported because we believe in their mission and have a binding affinity for their purpose and goals. To all those organizations, we salute you. We thought for this issue that we would gather together contributors who could discuss some of those issues that surround non-profits. The cover article, written by Gabriel Potter, provides us with a succinct overview of some of the challenges facing non-profit organizations. He discusses what makes them different from corporate America and the unique trials they must manage from both a structural and operational standpoint.

Contributing Editors Sean Patton, AIF® Thomas Zamiara, AIFA® Creative Director Gabriella Martinez Contributors Joshua E. Gewolb, Esq. Gabriella Martinez TIAA-CREF Gabriel Potter, MBA Thomas Zamiara, AIFA®

Our interview with Terry Knapp on page 8 gives us a glimpse of life in the nonprofit sector. Terry discusses Lollypop Farm, Humane Society of Greater Rochester, NY and the structure of thier benefit plans, workforce, retirement goals, and more. We welcome contributor, Joshua E. Gewolb, Esq. who discusses New York’s recently enacted “Non-profit Revitalization Act”. Josh discusses how it affects nonprofits and, when it comes to compliance, why they should take IRS tax rules into account. We also have two articles from TIAA-CREF “Financial Security and Careers in the Non-Profit Sector” and “Aging and America: Demographic Change and its Consequences for Work and Retirement”. The “Financial Security and Careers in the Non-Profit Sector” dicusses discusses key findings from a joint study by both TIAACREF and Independent Sector while “Aging in America: Demographic Change and its Consequences for Work and Retirement” is a summary of key findings from the 2012 report Aging and the Macroeconomy: Long-Term Implications of an Older Population and the colloquium, Towards a Policy Agenda for an Aging America. Enjoy the issue and don’t forget to keep the comments coming – they are a great help and they give us countless ideas for future issues and topics.

Tom & Sean 4 | FALL 2014

Questions or Comments? email us at info@conferomag.com

The information contained in this on-line magazine is for general information purposes only. The information is provided by Westminster Consulting and while every effort is made to provide information which is both current and correct, Westminster Consulting makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the on-line magazine or the information, products, services, or related graphics contained within the on-line magazine for any purpose. Any reliance you place on such information is therefore strictly at your own risk. In no event will Westminster Consulting be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this on-line magazine.

CONTRIBUTORS

Gabriella A. Martinez Editor Gabriella is a marketing professional with over eight years of experience. She currently holds a Bachelor of Science in Multidisciplinary Studies with concentrations in Marketing, Printing & Publishing, Photographic Arts & Sciences and Psychology from Rochester Institute of Technology. She has been a featured writer and editor in several publications including Rochester Woman Magazine and Pup Culture.

Gabriel Potter, AIF ® Contributing Writer Gabriel is a Senior Investment Research Associate of Westminster Consulting where he designs strategic asset allocations and conducts proprietary market research. He earned a B.A. in Economics and a Certificate of Business Management from the University of Rochester and an M.B.A. with concentrations in Corporate Finance and Computers & Information Systems from the University of Rochester’s William E. Simon School of Business. He also holds an Accredited Investment Fiduciary Analyst (AIF®) designation and has been quoted in Human Resources Executive Magazine and his articles have been published through fi360 and AdvisorOne.

TIAA CREF Article Contribution (Various Authors)

Joshua E. Gewolb Harter, Secrest and Emery Contributing Writer Josh Gewolb is a tax attorney at Harter Secrest & Emery LLP. Mr. Gewolb focuses his practice on federal and state tax matters. He has experience with a wide range of corporate transactions, including asset and stock acquisitions, reorganizations, and spin-offs in the context of both closely held and publicly traded businesses. Mr. Gewolb has represented private equity and venture capital funds in all aspects of leveraged buyout transactions and venture financings, and has experience advising clients on federal and state issues related to the use of S corporations, partnerships, and limited liability companies in structuring businesses. Mr. Gewolb maintains an active practice advising not-for-profit entities on tax and corporate matters, with clients ranging from colleges and universities to foundations to trade associations. He represents both for-profit and not-for-profit clients in connection with disputes with federal and state taxing authorities. Mr. Gewolb is a frequent speaker on topics related to taxation, and serves as tax columnist for the Rochester Business Journal. He is active in bar association activities at the county and state levels and is a member of several state and local bar committees relating to taxation and not-for-profit law.

The TIAA-CREF Institute helps advance the ways individuals and institutions plan for financial security and organizational effectiveness. The Institute conducts in-depth research, provides access to a network of thought leaders, and enables those we serve to anticipate trends, plan future strategies and maximize opportunities for success.

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FALL 2014

THE ONE PAGE MAGAZINE Large firms continue moving away from defined benefit plans: Survey

8 in 10 give thumbs up to defined contribution plans

The number of defined benefit pension plans sponsored by the nation’s largest corporations continues to dwindle.

U.S. workers are upbeat about defined contribution plans — at least as far as their usefulness — but still don’t know how much to save for retirement.

Just 118, or about 24%, of Fortune 500 companies offered a defined benefit plan to new salaried employees in 2013, down from 123 in 2012 and a steep decline compared with the 277, or 55%, that offered the plans in 2003, according to a Towers Watson & Co. survey.

That’s the word from a survey from the LIMRA Secure Retirement Institute, which found that, while 80 percent of workers think 401(k)-type plans are an effective way to save for retirement, half are still ignorant of how much they’ll need to save.

Frequently cited reasons for the decline in employer sponsorship of defined benefit plans include longer employee lifespans, which increases benefit costs; decreased corporate tolerance of fluctuating contribution requirements, which can jump up and down due to investment results; and escalating Pension Benefit Guaranty Corp. insurance rates.

This is despite efforts to educate participants on how much is necessary, and how important it is to start saving early and consistently.

To read the article on Forbes visit: www.businessinsurance.com/article/20140904/NE WS03/140909924?tags=|307|77|82#

—Business Insurance, 9/4/14

... Another interesting result of the survey is the number of people who believe that an employer has at least some responsibility to help employees save for retirement, with 44 percent weighing in in favor and 28 percent undecided. Read the full article at: www.benefitspro.com/2014/09/23/8-in-10-givethumbs-up-to-defined-contribution-pla —Marlene Y. Satter, Benefits Pro 9/23/14

Retirement savings in the US grow across all age groups According to a recent survey, median retirement nest eggs among employed adults of all ages either doubled or tripled between 2007 and 2014. The increase in retirement savings can be credited, in part, to a booming stock market and increased awareness of the need to save. For the full article click here: www.csmonitor.com/Business/2014/0923/Retirementsavings-in-the-US-grow-across-all-age-groups-video

—Schuyler Velasco, CSMonitor.com, 7/18/14

Retirement plan participants grow more cautious Defined contribution and defined benefit participants are adopting goal-oriented approaches to offset risk, as opposed to pursuing the highest potential returns, according to research commissioned by Principal Global Investors. The study sees the shift to more cautious investing as a fundamental change, not a short-term trend. Baby boomers especially are retreating from a risk-taking mode. To read the article on BenefitsPro.com visit: www.benefitspro.com/2014/09/22/retirement-planparticipants-grow-more-cautious

— Nick Thornton, BenefitsPro.com, 9/22/14

IRS Issues 401(k) After-Tax Rollover Rules There are new rules for taking after-tax money out of your 401(k), and they are taxpayer-friendly. Basically, if you have after-tax money in your 401(k) retirement account, you can roll it into a Roth IRA where it will then grow tax-free (as opposed to tax-deferred). You don’t have to pay pro rata taxes on the distribution, accounting for the percentage of the pre-tax money in your 401(k). The new IRS rules have opened the door to a smart planning move. You’re basically isolating basis to do a tax-free Roth conversion. For the full article click here: www.forbes.com/sites/ashleaebeling/2014/09/19/irs-issues-401k-after-tax-rollover-rules/

6 | FALL 2014

— Ashlea Ebeling, Forbes, 9/19/14

OUR BEST ADVICE TO EMPLOYEES? ASK FOR ADVICE.

At TIAA-CREF, our top priority is helping employees pursue higher income replacement rates in retirement. We do that with one-on-one financial advice in person and online, at no extra charge.1 In a study, 68% 2 of participants we advised took action to improve their retirement readiness.

Learn how we do it in just 2 clicks at TIAA.org

Restrictions apply. Must be enrolled in a TIAA-CREF retirement plan to be eligible. 2 Source: TIAA-CREF Outcomes Chart Report 2011-2012. 3 The Lipper Award is given to the group with the lowest average decile ranking of three years’ Consistent Return for eligible funds over the three-year period ended 11/30/12 and 11/30/13, respectively. TIAA-CREF was ranked against 36 fund companies in 2012 and 48 fund companies in 2013 with at least five equity, five bond, or three mixed-asset portfolios. Past performance does not guarantee future results. For current performance and rankings, visit the Research and Performance section on tiaa-cref.org. TIAA-CREF Individual & Institutional Services, LLC, and Teachers Personal Investors Services Inc. C17458 ©2014 Teachers Insurance and Annuity Association of America – College Retirement Equities Fund (TIAA-CREF), 730 Third Avenue, New York, NY, 10017. 1

BEST OVERALL LARGE FUND COMPANY 3 The Lipper Awards are based on a review of 36 companies’ 2012 and 48 companies’ 2013 risk-adjusted performance.

Consider investment objectives, risks, charges and expenses carefully before investing. Go to tiaa-cref.org for product and fund prospectuses that contain this and other information. Read carefully before investing. TIAA-CREF funds are subject to market and other risk factors.

7 QUESTIONS

An Interview with Terry Knapp

Director of Organizational Development for Lollypop Farm, Humane Society of Greater Rochester

n this issue, Terry Knapp the Director of Organizational Development Lollypop Farm, Humane Society of Greater Rochester, talks to Confero about life in the non-profit sector. For the benefit of our readers, tell us a little about Lollypop Farm. Established in 1873, Lollypop Farm is the largest animal welfare organization helping pets and people in the Greater Rochester, NY area. The Humane Society is committed to building lifelong bonds between people and animals through education, community outreach, and the prevention of cruelty. With a main campus located on 136 picturesque acres in Fairport, NY and four other adoption centers throughout the community, the organization provides shelter, care, and adoption for dogs, cats, small animals, birds, reptiles, horses, and other farm animals. Lollypop Farm is an independent nonprofit organization supported solely through contributions, grants, investments, proceeds from retail sales, and fees for programs and services. I’m guessing you have a greater proportion of part-time and volunteer employees than most non-profits. Currently we employ 90+ staff. More than half are full time. Additionally, we have hundreds of very active volunteers. 18| |FALL 8 SUMMER 2014 2013

By Gabriel Potter, MBA The unwavering commitment and dedication of both staff and volunteers is truly amazing! Most of those retirement plans are corporate 401(k) plans. From your perspective, are there any great differences between running your retirement plans in a not-for-profit environment vs. a corporate 401(k)? Just like other corporate 401k plans, we take our corporate fiduciary responsibility very seriously. Therefore, through enlisting the help of our broker, Bonadio Financial Services, we make sure we provide great fund offerings and excellent customer service and education to our employees regarding our 403(b) plan. Let’s talk benefits. What sort of benefit plans – other than retirement plans – do you have in place for your employees? We offer very competitive medical, dental, and vision plans. Additionally, we offer company-paid life insurance and a very generous paid time off benefit. What goals does Lollypop Farm have for its future, particularly in regards to its overall mission? We are proud to be a total animal resource center for the Greater Rochester area and beyond, and the gold standard for care and housing of homeless animals. As we

move forward, strategic planning includes the development of new programs and the expansion of existing ones that will help build lifelong bonds between people and animals and reduce animal cruelty. What are Lollypop Farm’s retirement and benefit goals? Lollypop Farm takes great pride in offering our employees and their dependents the most competitive benefit programs possible. Each year we benchmark our plans against the industry and conduct the necessary due diligence to be sure we are utilizing the most cost effective vendors with high levels of service and customer satisfaction. Not-for-profits generally rely more on community engagement for reaching these goals. What is Lollypop farm doing to reach out to the community to meet these goals? How is it going so far? Lollypop Farm has a robust marketing & social media program that relies heavily on multi-channel community engagement. People that love animals are extremely committed to the mission of Lollypop Farm and are outspoken advocates of homeless pets. We rely on their generous dedication and engagement to help fulfill our mission. n For more information and to meet current animals available for adoption, please visit www.lollypop.org

The law firm with the most Top Tier rankings in Rochester. in the most recent rankings by u.s. news/Best lawyers, one law firm received more top tier rankings in Rochester and Western new york than any other: harter secrest & emery. and that makes one legal decision remarkably easy: choosing the very best law firm. to see a list of hse’s top tier practice areas, visit toptier.hselaw.com.

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FEATURE

FINANCIAL SECURITY AND CAREERS

Financial Security and Careers in the Nonprofit And Philanthropic Sector Provided by TIAA-CREF

Background In the aftermath of the 2008-09 recession, many individuals worried about their short-term and long-term financial security. In the nonprofit and philanthropic sector (hereafter referred to as “the sector”), there is speculation that such concerns among its workers are undermining the sector’s ability to attract and retain the new talent required to be successful, while simultaneously preventing senior leaders and older employees from retiring. Anecdotal evidence indicates that sector employees feel unable to prepare financially for personal goals, such as comfortable retirement or an “encore career.”1 But objective data is lacking to evaluate the scale of such sentiments and resulting impact. The sector faces additional pressures with demand for services rising at a time when public and private contributions have fallen. Collaboration The TIAA-CREF Institute and Independent Sector collaborated to examine the issue of lifelong financial security among the sector’s workforce

and its impact on the leadership and effectiveness of nonprofit organizations. To that end, the TIAA-CREF Institute and Independent Sector developed the Survey on Financial Security in the Nonprofit and Philanthropic Sector to better understand the perspectives of full-time employees regarding their personal finances and its impact on their job satisfaction and career decisions. In July 2011, 1,000 full-time employees in the sector were surveyed by phone. Respondents identified themselves as working for a nonprofit organization, such as a charity, foundation, museum, endowment or philanthropic organization. The demographics of those surveyed appear in Figure 1, on page 13. The sample was evenly distributed across the early- (age 21–34), mid- (age 35–49) and late-career (age 50 and older) stages. The sample accounted for different occupational groups within the sector as well. Those in executive leadership positions comprised 14% of the sample, management 21%, professionals 32%, and administrative staff 23%. The remaining 11% were in other positions or declined to specify

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FEATURE their position. Just over one-half of those in the sample were married; two-thirds of respondents were women. This final report draws upon the survey results2 and discussions at two related convenings where survey findings were presented: Financial Security and the Leadership Pipeline, convened by TIAACREF and Independent Sector on April 3, 2012, and the CEO Summit Session with TIAA-CREF President and CEO, Roger Ferguson, at the 2011 Independent Sector Annual Conference. Both gathered

sufficient financial resources to ensure their long-term financial security. At the same time, over three-quarters report access to an employer-sponsored retirement plan or plans; almost one-third have access to a defined benefit pension plan and more than two-thirds to a defined contribution plan, such as a 403(b) plan. What drives dissatisfaction with financial preparations for retirement? It appears that an inability to save enough concerns sector workers. While 76% are currently saving for retirement, less than 20%

satisfied with their current employment. Personal satisfaction with the mission of their work is an important driver in these employees’ career decisions, with more than 90% saying it is a strong consideration. •

Nonprofit employees also deem salary and career advancement important. Sixty-seven percent of women and 47% of men reported salary as a strong

The majority of full-time employees in the sector are extremely or very satisfied with their current employment. While their career decisions are motivated less by financial considerations and more by personal satisfaction with the mission of their work, it appears that compensation is nonetheless a nagging issue for many.” sector leaders to examine the financial security issue, identify roles for leaders, and consider next steps. Summary of Findings The majority of full-time employees in the sector are extremely or very satisfied with their current employment. While their career decisions are motivated less by financial considerations and more by personal satisfaction with the mission of their work, it appears that compensation is nonetheless a nagging issue for many. Almost one-half have considered leaving the sector for better compensation elsewhere. Career advancement opportunities are also a concern among the nonprofit workforce. Almost one-half of sector employees are not satisfied with their ability to prepare financially for retirement. More than 40% do not feel that they are accumulating 12 | FALL 2014

of these savers are extremely or very confident that they are saving the right amount. Household debt is an issue for some – 20% of full-time employees in the sector classify their level of household debt as a major problem and 38% classify it as a minor problem. Those with a major debt problem are the least likely to be saving for retirement. By comparison, research focused on the perceptions of financial security among all U.S. workers suggests that while some of these issues are specific to the nonprofit sector, some concerns are prevalent across sectors.3

consideration. Satisfaction with career advancement opportunities varies with career stage, but overall only 30% are very or extremely satisfied and 36% are somewhat satisfied. Salary considerations •

Almost one-half of employees have considered leaving the sector for better compensation elsewhere.

•

Forty-two percent of employees feel they are not accumulating sufficient financial resources to ensure their long-term financial security.

Key survey findings Satisfaction and career advancement •

A majority (59%) of nonprofit employees are very or extremely

Retirement planning •

Most employees are covered by a retirement plan at work: 30%

FINANCIAL SECURITY AND CAREERS have access to a defined benefit Key survey ﬁndings plan 69%advancement have access to a Satisfaction andand career defined contribution More W A majority (59%) of nonprofit plan. employees than three-quarters of those are very or extremely satisfied with with their access to a defined contribution current employment. Personal satisfaction with the mission of their work is an plan make contributions. important driver in these employees’ • decisions, However, of sector career with45% more than 90% saying it employees is a strong consideration. are not satisfied

their ability to prepare Nonprofitwith employees also deem salary financially for retirement. and career advancement important. Sixty-seven percent of women and 47% of Household is likely a men • reported salary asdebt a strong factor contributing to acareer lack of consideration. Satisfaction with confidence regardingvaries saving for advancement opportunities with career stage, but overall 30% are retirement; 70% only of early-career very or extremely satisfied and stage employees and 36% 60%are of somewhat satisfied. mid-career employees consider

Salary considerations their level of household debt W Almost one-half of employees have to be a problem. considered leaving the sector for better compensation Behind the elsewhere. uncertainty W

Forty-two percent of employees feel they • One-third of sector employees are not accumulating sufficient financial received retirement resourceshave to ensure their long-term financial planning security. advice within the

three years. Retirementpast planning W

Most employees are covered by a • Two-thirds have not tried to retirement plan at work: 30% have access determine how much money to a defined benefit plan and 69% have will need to accumulate access tothey a defined contribution plan.so that they can liveofcomfortably More than three-quarters those with access toinaretirement. defined contribution plan make contributions.

•

Among savers who are confident

However, 45% of sector employees are that they are saving the right not satisfied with their ability to prepare one-third have not financiallyamount, for retirement.

attempted such a calculation.

Household debt is likely a factor contributing toresults a lackfound of confidence The survey that while 60% of regarding saving for retirement; 70% of full-time employees are extremely or very early-career stage employees and 60% of satisfied with their current employment, mid-career employees consider their level compensation, of concerns householdregarding debt to be a problem. debt,

personal finances and retirement persist.

These concerns are important and deeply affect workforce management at every stage: attracting, retaining, and rewarding.

Talent,the commitment and passion among Behind uncertainty sector leadership staff drive W One-third of sectorand employees havethe received planning advice success andretirement sustainability of nonprofit within the past three years. and philanthropic organizations. The

W Two-thirdsthe challenges sector confronts make have not tried to determine how much money theyand will cultivating need to fostering leadership accumulate that they can live a robust and so diverse human resource comfortably in retirement. pipeline a key strategic focus.

Among savers who are confident that they The surveythe results make clear that are saving right amount, one-third financial must due have notsecurity attempted suchbea given calculation. W

attention enabling organizations to of The surveyinresults found that while 60% attain and support are talent throughout full-time employees extremely or very satisfied with their current employment, the leadership lifecycle, but that no concerns regarding debt, single metric can compensation, respond to every personal finances and retirement persist. question about leadership and human These concerns are important and deeply capital management. Independent Sector affect workforce management at every and TIAA-CREF are committed to stage: attracting, retaining, and rewarding. providing the tools and information to Talent,the commitment among focus nonprofit and andpassion philanthropic sector leadership and staff drive the sector on these issues. Through this success and sustainability of nonprofit and partnership, both organizations intend philanthropic organizations. The challenges to effectively to help themore sector confronts take makeaction fostering the nonprofit workforce leadership and cultivatingthrive. a robust and diverse human resource pipeline a key To view the rest of the article visit: www. strategic focus.

Figure 1 - Demographics of survey respondents Position Executive Leadership

14%

Management

21%

Professional

32%

Administrative

23%

Other/Prefer not to say

11%

Career Stage (Age) Early-Career (21-34)

34%

Mid-Career (35-49)

31%

Late-Career (50 and older)

34%

Tenure in Sector 5 years or less

34%

6 to 10 years

23%

11 to 15 years

13%

16 to 25 years

17%

Over 25 years

Tenure as Paid Employee with Current Employer 1 year or less

17%

2 to 3 years

21%

security must be given due attention in enabling Institute organizations support TIAA-CREF is a divisionto of attain Teachersand Insurance talent throughout leadership and Annuity Associationthe (TIAA), New York, lifecycle, NY. but that no single metric can respond to every about leadership and human © 2014question Teachers Insurance and Annuity Association capital management. Independent Sector of America-College Retirement Equities Fund (TIAAand TIAA-CREF are committed to providing CREF), 730 Third Avenue, New York, NY 10017. the tools and information to focus the nonprofit and philanthropic sector on these 1 The term “encore career” originated with Marc Freedman issues. Through this partnership, both and his organization, “Encore Careers.” It refers to “jobs that combine personal meaning, income and social take organizations intendcontinued to more effectively impact – into thehelp secondthe half of life.” action nonprofit workforce thrive.

4 to 5 years

19%

6 to 10 years

20%

11 to 20 years

15%

Over 20 years

Except where noted otherwise, data in this report is from the 2011 Survey on Financial Security in the Nonprofit and Philanthropic Sector.

Don’t know

tiaa-cref.org/public/pdf/A68420-212906_ The survey results make clear that financial JointStudy_Bro_vs2_final5_n.pdf n

3 Information on these sources can be found in the “Works Cited” section.

Employer Size Less than 10 employees

27%

10 to 24 employees

17%

25 to 49 employees

13%

50 to 99 employees

100 or more employees

33% 2%

Source: 2011 Survey on Financial Security in the Nonproﬁt and Philanthropic Sector, TIAA-CREF Institute and Independent Sector.

www.conferomag.com | 13

RES IPSA LOQUITOR

IN COMPLYING WITH THE NEW NON-PROFIT LAW, DONâ&#x20AC;&#x2122;T FORGET THE TAX RULES

BY JOSHUA GEWOLB, ESQ. 14 | FALL 2014

he Non-Profit Revitalization Act took effect in New York State on July 1, 2014.

operation, administration and governance of non-profit entities and changes designed to safeguard against abuses.

The Act establishes significant new reporting and compliance obligations for New York non-profits.

It is the second category of changes that overlaps with IRS rules, particularly the extensive new rules relating to transactions between non-profits and related parties such as their directors, trustees, officers, and certain employees.

While these are rules of state law, they interact with the federal tax law in a number of important ways. In complying with the new New York rules, it is important for non-profits to take IRS rules into account. The changes under the new non-profit law can be divided into two general categories: changes that streamline the

Historically, the New York Attorney General has had plenary authority to act on behalf of the people to ensure that the assets of non-profits are used to further their mission. However, New York law has not had any specific procedural requirements with respect to how non-

DONT FORGET THE TAX RULES profits interact with related parties. If a New York charity were, for example, to buy a headquarters building from a trustee, the old New York law required that the transaction be fair, but didn’t have much to say about the process used to approve the deal. The new act adds such rules to New York law for the first time. Federal tax law, however, has long contained detailed rules regarding related party transactions. Unfortunately, the new New York State rules differ from the tax rules in a number of important respects, presenting significant traps for the unwary. It is important that non-profits not lose sight of the federal tax law in complying with the new state rules. There are two important requirements under federal tax law to note. The first are the so-called “excess benefit” rules, which apply to transactions between charities and related persons, such as trustees. Under these rules all such transactions must be at fair market value. While this may sound simple, the IRS rules apply to a different set of transactions than the new New York law. Careful legal analysis is required to determine whether one or both regimes apply. As a matter of best practice, it makes sense to assume that both sets of rules apply to all transactions. In addition, the two sets of rules contain different requirements about how related party transactions need to be approved. The IRS rules contain a safe harbor which presumes that a transaction is fair if it was properly approved by disinterested board members after considering data

about similar deals. In the example involving the trustee selling a building to the non-profit, the non-profit would need to obtain an appraisal with comparables and the trustee could not participate in consideration of the purchase. New York does not contain a safe harbor and a transaction can be questioned even if all of the applicable requirements are followed. In addition, under New York law, following the federal safe harbor procedures is not enough. To comply with New York law, no trustee that has any business relationship with the corporation can participate in consideration of the sale. This includes any trustees that are employees of the corporation, who are employed by companies that do significant business with the corporation, or have relatives that fall in these categories. Another key area of overlap is the “self-dealing” rules applicable to grantmaking foundations. These rules contain many specific and often counterintuitive prohibitions on transactions between the foundation and related persons, including transactions that would benefit the foundation. For example, these rules would prohibit the organization in our example from buying the building from the trustee, even at, or below, fair market value, regardless of the procedures that are followed. (The trustee would be allowed to donate the building.) Just because a transaction is allowed under New York law doesn’t mean that the tax rules allow it.

Historically, the New York Attorney General has had plenary authority to act on behalf of the people to ensure that the assets of nonprofits are used to further their mission. However, New York law has not had any specific procedural requirements with respect to how non-profits interact with related parties.”

The revised New York law requires that non-profits have a policy about transactions with interested persons complying with the above rules. The IRS doesn’t require a policy of this kind, but it has promulgated a model policy that many non-profits adopt but which contains rules that are different from the New York requirements. While protecting against abuses in transactions with related parties may seem like a matter of common sense, there are many very specific rules both under federal tax rules and under the new New York law. Unfortunately, these requirements are not always consistent with each other, presenting many opportunities for inadvertent missteps. Non-profits should establish policies that comply with both sets of rules and be sure to abide by these policies in any transactions with their directors, officers, trustees, or key employees. n Joshua E. Gewolb, Esq. is a tax attorney at Harter Secrest & Emery LLP. He can be contacted at: jgewolb@hselaw.com

www.conferomag.com | 15

FEATURE

A FOCUS ON

NON-PROFIT

ORGANIZATIONS By Gabriel Potter, MBA

| FALL 2014 2012 14 16 | January-March

A FOCUS ON NON-PROFIT ORGANIZATIONS

orporate America is largely driven by the profit incentive: a business should bring in more money than it spends so the owners can keep the profit. There are other organizations – charitable, religious, healthcare, educational, publically governed, and so on — which choose to relinquish their surplus revenues to advance a specific mission. Since these non-profit organizations generally serve the community, they earn some tax advantages from the government to incentivize and protect them. The standards for business management, retirement planning, benefit planning, and ancillary operations generally follow the precedents set by the traditional for-profit corporate entities. However, there are some unique elements — positive and negative — which non-profit organizations have to navigate. For instance, non-profit organizations have agreed to divest their surplus revenues into their mission which means resource management becomes especially difficult. Nonprofit organizations often do not have a “rainy-day fund” or other excess retained earnings sleeve which might allow them to smooth out their earning and spending trends over time. Non-profit organizations cannot access funding the way a for-profit company can. A for-profit company can sell ownership stakes (initial public offerings and other stock sales) or simply borrow money from bond investors or the commercial paper market if they have a cash shortfall. On the plus side, successful non-profit organizations usually have community goodwill and a potential donor base to draw upon when necessary. A non-profit organization’s chief financial officer must instead find a way of transforming grants, private donations, pledge drives, and sporadic government support into a stable flow of dollars to maintain the organization and fund new projects. Non-profits simply have a different culture than many for-profit businesses and this translates into eccentricities which human resource staffers have to negotiate around. For instance, non-profits attract passionate people, inspired by the organization’s mission, and human resource staffers must figure out how to funnel that energy in positive ways. More accurately, non-profit organizations tend to employ the passionate advocates because, on a strictly financial scale, they tend to underpay employees relative to for-profit corporate wages. From an operational perspective, coordinating that positive energy into a consistent team effort among a greater number of non-professionals, potentially underpaid employees, and part-time volunteers can be a significant challenge.

... because non-profit organizations have agreed to divest their surplus revenues into their mission means that resource management becomes especially difficult. Non-profit organizations often do not have a “rainy-day fund” or other excess retained earnings sleeve which might allow them to smooth out their earning and spending trends over time.”

More broadly, non-profits often rely on community engagement to meet their goals, financial or otherwise. Managing community good will and demonstrating value to the community — particularly the donor base – can keep the organization healthy in times of stress, and growing as necessary. Therefore, catering to the aspirations of the active donor base becomes essential for successful nonprofit organizations. Non-profit organizations that overtax community good will can risk donor fatigue and long term disengagement of key members. There are challenges, too large to include in this brief introduction, which deserve more attention. For instance, a corporate 401(k) defined contribution plan has an analogous non-profit counterpart: the 403(b) plan. 403(b) plans are run with slightly different rules than traditional 401(k)s, so consultants and plan sponsors should be wary of these differences. With more than 1.6 million non-profit organizations in the United States, representing many millions of employees, it is worth taking time to consider the unique circumstances of these entities. We hope you now have a small idea of the unique challenges — structural and operational — that non-profit organizations have to manage. n Gabriel Potter is a senior investment consultant at Westminster Consulting. He can be contacted at: gpotter@westminster-consulting.com

www.conferomag.com | 17

FEATURE

16 | FALL 18 SUMMER 20142013

AGING AND AMERICA

AGING AND AMERICA: DEMOGRAPHIC CHANGE AND ITS CONSEQUENCES FOR WORK AND RETIREMENT Provided by TIAA-CREF

n 2012, the National Research Council of the National Academy of Sciences issued a comprehensive report documenting the aging of the U.S. population and analyzing the economic effects this phenomenon

may trigger over the next 40 years. The report, Aging and the Macroeconomy: Long-Term Implications of an Older Population, identified two potential policy strategies for mitigating the economic consequences of population aging: 1) enabling people to increase their savings for retirement; and 2) encouraging people to postpone retirement by working longer.1 In November 2013, the TIAA-CREF Institute and the Alfred P. Sloan Foundation sponsored a colloquium of researchers and policy analysts to discuss how to help people save more and work longer.2 The colloquium, Towards a Policy

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FEATURE

Agenda for an Aging America, began with a panel during which the key findings and implications of the National Academy report were reviewed. A second panel discussion focused on improving the planning and saving behavior of American workers. Senator Tom Harkin, chair of the Senate Health, Education, Pension and Education

Research indicates increased labor force participation among older workers after the passage of state and federal protections against age discrimination in employment. It further indicates that anti-discrimination laws complement the effect of Social Security reforms intended to increase work lives and delay benefit claiming.â&#x20AC;?

Committee, then gave a keynote address, presenting his perspectives on enabling people to save more by improving the U.S. public and private pension system for workers. A final panel focused on research and policy initiatives for longer work. Key findings from the colloquium are described below, under the broad themes of saving more and working longer. SAVING MORE 1. Creating a more holistic and integrated retirement income system requires defining the relative responsibilities of individuals, employers and government for assuming the risks inherent in financing retirement income, such as investment, interest rate and longevity risks. It also entails addressing the challenges posed by changing labor force participation rates, as well as changing job mobility and retirement patterns. Health and long-term care insurance

20 | FALL 2014

should also be integrated into the

deferred annuitization through

system.

longevity annuities under required

2. The objective of saving for retirement

minimum distribution rules.

should be to provide an adequate

4. Low levels of financial literacy and

and secure income throughout

poor personal financial management

retirement. This implies leveraging

practices are barriers to long-term

annuity products to insure against

financial security. For example,

outliving accumulated savings.

financial literacy is generally low

3. Unlike the 403(b) model in higher education, most private sector 401(k) plans do not offer an annuity payout option, primarily due to fiduciary concerns of plan sponsors. Proposals to address this include a safe harbor provision for in-plan lifetime income options, clarity regarding the fiduciary exposure associated with in-plan lifetime income options, classifying products

even among college-educated millennials who are nonetheless confident in their ability to manage day-to-day financial matters. But debt is widespread among this group, as is worry about repaying debt. More fundamentally, their debt is associated with poor financial management, such as expensive credit card practices and tapping into retirement accounts.

with a lifetime income component

5. There are signs of an emerging,

as Qualified Default Investment

bipartisan consensus that pension

Alternatives (QDIAs), and allowing

AGING AND AMERICA

reform should expand retirement

by limited physical demands, flexible

Such programs can lengthen work-

plan coverage across the workforce,

schedules, opportunities for social

lives and ease the transition into

maintain or expand tax incentives

interaction and relatively high levels

retirement by allowing older

for retirement savings and plan

of job satisfaction. In the service

employees to work part-time for

sponsorship, and promote financial

sector, an increased demand for older

pro-rata salary.Beginning in 2014,

education efforts. In the absence

workers has been associated with

some 100,000 federal employees are

of federal action, various states

increased wages, a decreased outflow

projected to take phased retirement

are proceeding with initiatives to

of older workers, and an increased

each year, resulting in a $450 million

promote retirement income security

inflow of older workers from other

reduction in annual payroll costs.

for the public sector workforce,

sectors and out of retirement.

At least 20% of the phased work

and private-sector workers as well. WORKING LONGER 1. Data indicate that labor force participation is already increasing among older workers. But workers with lower education levels remain less likely to continue working due to a combination of health issues and jobs that tend to be more physically demanding. 2. Many workers change jobs after age 50; this may or may not involve a change in occupation. While the new jobs often pay less, they tend to involve less physical labor and less managerial responsibility. Many job changers report increased enjoyment in their work.

4. Research indicates increased labor force participation among older

To view the full report visit: www.

and federal protections against age

tiaa-crefinstitute.org/public/pdf/ti_

discrimination in employment.

agingandamerica0514c.pdf n

It further indicates that antidiscrimination laws complement the effect of Social Security reforms intended to increase work lives and delay benefit claiming.

for an aging population include flexible work schedules to help individuals balance work with family caregiving responsibilities; continuing education to address changing technology and knowledge requirements; and reorganization of how and where people work to

date of labor market demand for

new social contract between young

older workers, existing research

and old employees.

sector, where jobs are characterized

TIAA-CREF Institute is a division of Teachers Insurance and Annuity Association (TIAA), New York, NY. ÂŠ 2014 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAACREF), 730 Third Avenue, New York, NY 10017.

5. Strategies to reengineer the workplace

promote knowledge transfer and a

worker employment in the service

younger workers.

workers after the passage of state

3. While there is limited research to

indicates significant growth in older

time will be devoted to mentoring

1 National Research Council. (2012). Aging and the Macroeconomy. Long-Term Implications of an Older Population. Committee on the Long-Run Macroeconomic Effects of the Aging U.S. Population. Board on Mathematical Sciences and their Applications, Division on Engineering and Physical Sciences, and Committee on Population, Division of Behavioral and Social Sciences and Education. Washington, D.C.: The National Academies Press. The report is available at: http://www.nap.edu/openbook.php?record_id=13465. 2 The colloquium was sponsored by a generous grant to the TIAA-CREF Institute from the Alfred P. Sloan Foundation. Colloquium presentations are available at: https://www. tiaa-crefinstitute.org/public/institute/convenings/upcomingpast-convenings/jointcolloquium2013.

6. The federal government has become a leader in the use of phased retirement.

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WESTMINSTER CONSULTING

800.237.0076 www.Westminster-Consulting.com