Having served on non-profits' boards and run a family marketing firm, Steven Grossman understands the challenges of small organizations — including providing retirement plans.
As treasurer and general receiver of Massachusetts, Mr. Grossman is implementing a program that lets employees in small not for profits — those with 20 or fewer employees and lacking a retirement plan of their own — invest in a 401(k) plan that leverages the assets of the $7.1 billion Massachusetts Deferred Compensation Plan.
The program creates a group trust in which non-profit employees' 401(k) assets will be pooled with the deferred compensation plan's assets, giving participants the benefits of lower-cost investments enjoyed by large DC plans. Massachusetts will be the first state to do so.
“Non-profits had little or no chance for a retirement benefit,” said Mr. Grossman, adding that an estimated 460,000 people, or 14% of the state's workforce, are employed by non-profits.
But thanks to legislation proposed by the treasurer's office and signed into law by Gov. Deval Patrick, an estimated 90% of the state's non-profit organizations might be eligible for this program, Mr. Grossman predicted “We wanted to use good public policy to improve lives without affecting taxpayers and without affecting the state budget,” said Mr. Grossman. Ensuring there would be no additional costs to taxpayers was crucial to securing legislative support.
Setting the employee limit and keeping the program restricted to non-profits was a political compromise. “I've never seen a piece of legislation that looked the same on the day it was signed compared to the day it was introduced,” Mr. Grossman said. “In a perfect world, I would have preferred that all non-profits that didn't have a retirement plan could participate.”
Getting legislative approval was arduous; but so is getting the Internal Revenue Service to sign off on the program.
Mr. Patrick signed the legislation in March 2012, and one month later, the MassachusettsTreasury Department began discussions with the IRS.
Negotiations are in the final stages; state officials are hoping for IRS approval by the end of the year, said David P. Lynch, executive director of the Massachusetts Deferred Compensation Plan. “A realistic rollout will be the first quarter of 2015.”
(However, Mr. Grossman will leave office Jan. 20. He didn't seek re-election as treasurer because he made a bid for the Democratic Party's gubernatorial nomination, losing the primary contest in September.)
“Having helped non-profits on a pro bono basis in the past, I believe this could be a big advantage for non-profits in the State of Massachusetts,” said one Innovator judge.
“I am very impressed by this campaign,” another judge said. “You can see from the implementation and having to go through the IRS how much work it took to get it started.”