By Grant Williams

Many nonprofit organizations face major problems as they seek to provide retirement benefits to workers, according to a new report.

But some relief could be forthcoming. Two members of Congress have introduced a bill that would relax rules that govern how charities and other employers make payments to a type of retirement program that is causing particular difficulties for many organizations.

The report, by the Johns Hopkins University's Listening Post Project, said that many charities are coping with retirement-plan problems by offering less-generous benefits and reducing the scope and scale of their plans' coverage, "actions which have serious implications for nonprofit workers and their families."

'Under Stress'

Among the struggling organizations: those that offer so-called defined-benefit plans, which provide set amounts of money to retired workers. The report said that 15 percent of organizations, generally larger groups with greater numbers of employees, offer such plans.

But also in a bind are groups that offer defined-contribution programs, such as 403(b) plans, which allow employees to save before-tax earnings through payroll deductions. Employers may make contributions to them. Fifty-eight percent of survey respondents said they had those programs for workers.

In major moves to cut expenses, some organizations are — depending on the plan they offer — stopping new employees from signing up for retirement programs or cutting back on their "employer matching" contributions.

Seventy-six percent of surveyed organizations that offer defined-benefit pension plans said that their plans are currently "under stress," the report said. Forty-three percent of those with defined-benefit plans said the stress was "severe" or "very severe."

The report said that the stock-market crash has left many nonprofit organizations with defined-benefit plans struggling to set aside money for future payments to retired employees.

A federal law, the Pension Protection Act of 2006, significantly increased the defined-benefit pension obligations of charities and other employers as organizations guarantee that they will have enough money to pay retired workers, the report noted.

The law requires organizations to have money in place to fully cover the plans "and to make up any shortfall resulting from market fluctuations through increased contributions into their pension funds over a seven-year period," the report said.

"Because the recent economic downturn has resulted in significant reductions in the value of pension-plan investments, however," the report said, "this 2006 Act requirement is subjecting these organizations to rather severe obligations, and, as a result, many are having to divert resources from their program operations to their pension plans at a time when needs are growing and resources are shrinking."

Rising Costs

Last month, a bill (the Preserve Benefits and Jobs Act) that would temporarily give employers more time to meet the pension requirements was introduced by Reps. Earl Pomeroy, a North Dakota Democrat, and Patrick J. Tiberi, an Ohio Republican.

The Listening Post Project said that, from 2007 to 2008, average defined-benefit pension costs faced by nonprofit groups grew by 6 percent, or double the inflation rate. "What is more, these organizations' average unfunded liability more than doubled, jumping from $658,104 in FY 2007 to nearly $1.4-million in FY 2008," the report said.

The Listening Post Project report said that a sizable majority — 58 percent — of organizations that offer defined-contribution pension plans such as 403(b) plans said that their programs are currently "under stress." Eighteen percent of those offering defined-contribution plans said the stress was "severe" or "very severe." One major source of the stress seems to be the "employer match," the report said, which is the contribution some employers add to the money that their workers have put into their retirement funds.

"These matches have been common at nonprofits, with 86 percent of organizations with defined-contribution plans indicating that they make some type of employer match," the report said.

"As evidence that such matches seem to be a source of nonprofit strain, a considerable majority (60 percent) of organizations with employer matches noted that their defined-contribution plan is currently under stress," the report said. "By contrast, only 40 percent of organizations that do not offer such matches reported that their plan is under stress."

The report said that, "while 42 percent of organizations with defined-contribution plans reported that their plan has just 'minimal stress,' these data may be hinting at another issue nonprofits are dealing with: low employee participation in nonprofit retirement benefit plans, as low wages, particularly in a depressed economy, make the option of directing wages toward retirement too prohibitive."

'Hard' Freezes

To reduce the costs of defined-benefit plans, some nonprofit organizations are reducing the scope and scale of their coverage, the report said. "This can be done by closing the plan to new employees or stopping future benefit accruals for some or all employees (commonly referred to as 'partial' or 'hard' freezes, respectively)," the report said.

Twenty-eight percent of groups with defined-benefit plans have prohibited new employees from participating, the report said. To slice expenses of defined-contribution plans, numerous nonprofit organizations are deciding to reduce their "employer match," the report said. In the past year alone, 14 percent of respondents offering a match have reduced it and another 3 percent have eliminated their match altogether.

The report — "Escalating Pension Benefit Costs: Another Threat to Nonprofit Survival?" — is available online at http://www.ccss.jhu.edu.