Retirement Plans and Charter Schools

In the retirement world, Charter Schools are unique within public education, because of your different recruiting and retention strategy.  Do you adopt the state retirement program or go at it on your own?  From our experience, most have opted out of the state’s program and mirror the retirement programs from the private sector. This offers more flexibility in plan design and recruiting, but this also means more scrutiny from the Department of Labor (DOL) and Internal Revenue Service (IRS) who oversee 401(k) and 403(b) plans.

With a 401(k) or 403(b), most Charter Schools will fall under ERISA regulation, which has both positive and negative aspects. While there is greater scrutiny from the DOL/IRS, at the same time, this oversight helps keeps these types of plans a great retirement tool for employees.  Advantages include the plan design options 401(k) and 403(b) allow compared to state retirement programs, which operate in a much narrower window.  Some examples of optional features charter schools can work with are eligibility periods, matching contribution schedules, vesting schedules, minimum funding requirements, and key employee incentives, to name a few.

Just five years ago, only about 40% of Charter Schools used an advisor to help oversee their plans. Today, over 85% use advisors.  Why?  These plans are complex! Both employers and employees need good advice for them to be effective retirement planning vehicles and to keep them in compliance.

"These plans are complex! Both employers and employees need good advice."

Design features you can incorporate for recruiting and retention and to provide tools for employees in their future planning include:

• Providing for automatic enrollment of all newly eligible employees
• Matching employer contribution formula for all employees regardless of participation
• Adding a Roth feature to the plan, giving employees additional tax planning flexibility

Important regulatory compliance considerations include:

• Operating your plan according to your written plan document, especially respecting compensation definitions, matching contributions and options not in the plan document
• Universal availability of elective deferrals to all eligible employees and distributing required annual notice
• Administering excess salary reductions involving all plans an employee participates under
• Restating and signing plan documents to amend them with current rules
• Regular benchmarking of investment and advisory fees as part of sponsor’s ongoing fiduciary responsibilities

These are only a few of the most common areas for compliance and planning flexibility. Retaining the services of a qualified plan advisor can help you in offering a plan that effectively serves your objectives and your employee’s needs.