retirement award for founder/director

retirement award for founder/director

Forum topic posted in Forum on 24 July 2008| 7 comments
audience: | last updated: 24 July 2008
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Offline
Joined: 03/11/1999
Points: 30
I am the treasurer of a small non-profit (revenue =$500,000 per year). Our founding director of 35 years is retiring at the end of the year, and we are grappling with what kind of financial award to give her. Our organization doesn't have any kind of pension plan except for a SIMPLE IRA that's been going for about three years. So far, our ideas are: 1) one year's salary and 2) paying health insurance for ten years. We know that any monetary award has to be 'reasonable', but that's a vague term. Are there tax consequences that are also important? Can we give her health insurance on a tax-free basis if she's not an employee? Can we put her on the payroll for a dollar per year and then pay health insurance as a tax-free fringe benefit?

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Offline
Joined: 12/06/2006
Points: 15
Use your own money
Accountability and trust is the foundation for which donors give - if you desire to reward someone that was not clearly budgeted - use your personal checkbook.
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Joined: 04/21/2006
Points: 30
consultant role
One role could be for your founding director to be a planned giving consultant. Each year, she could call all members who have told you they've left a planned gift, and thank them. You could have a simple contract for her with the general ideas. You could use her name (say a Founder's Society) for planned giving, and have periodic articles. She would not have to spend much time -- other than the calls, have her attend an annual Founder's Society dinner (or lunch) for these planned giving donors. Back to the retirement issue, non-profit plans are not qualified as other plans are under ERISA, although they have many of the same constraints. I think speaking with someone who works with ERISA rules is the best plan if the retiring director does not have an ongong role.
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Joined: 09/14/2001
Points: 15
retirement award for founder/director
Have you considered establishing a top-hat, unfunded 457 Plan? Such a plan would not come under ERISA and would allow you to provide your retiring founder/director with additional retirement benefits.
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Joined: 08/04/1999
Points: 15
Retirement Award
Maybe it is only me, but it strikes me as odd as to why a financial "award" would be given to this individual who is retiring, despite being a founding director. Is he or she expecting one? I have been in the non-profit world for 15 years and no long-time employee that I am aware of has ever expected "parting" monetary or other benefits upon retiring from an organization . Now, on the other hand, if the person still has valuable contributions to make and wants to continue working in a different capacity - and you can afford to do so - setting up a consulting arrangement might be a win-win situation. But, the individual might actually be looking forward to retiring? Perhaps someone close to this individual could talk to him or her and find out what his or her retirement plans are. I would hope this person is financially secure and that he or she would think your dollars would be better spent, particularly since you are a small non-profit.
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Joined: 01/16/2003
Points: 15
retirement
What about a paid sabbatical? If a general policy was in place awarding sabbaticals to all employees after __ years of service would this meet the fairness test? In another instance a group I know about contracted for a year period with the departing founder as a "senior consultant" with somewhat undefined expectations and the agreement that he would not be expected in the office "since he had a home office." That's a little fuzzy, but board members and the new director report it worked out.
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Joined: 03/21/2002
Points: 15
Retirement Award
Reasonableness is absolutely essential. If your organization is a 501(c)(3) public charity, it must comply fully with the "excess benefit rules" of IRC sction 4958. They address 3 key requirements for establishing "reasonableness" of compensation: comparables, approval by an independent governing body and documentation. This area is of extreme importance, especially because a violation can result in personal liability of persons approving a transacton.
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Joined: 07/17/2007
Points: 15
Retirement Award
I believe you need to consult with an ERISA lawyer. Benefits such as those you mentioned could be deemed to discriminate against other employees who are not getting similar benefits upon their retirement. We recently explored benefits for retiring teachers and ran up against ERISA barriers.
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