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Twokin Consulting: Suspend Retirement Contributions

This post is a continuation of a series of Twokin Consulting articles on how higher education institutions need to challenge the status quo using innovative ideas for reducing costs, increasing revenues, and improving campus operations.

Twokin Consulting Estimate of Implementation Difficulty

Easy

Twokin Consulting Estimate of Implementation Timeline

Short Time Frame (1 month to 6 months)

Twokin Consulting Estimate of Direct Financial Impact

Large

Twokin Consulting Estimate of Campus Controversy it will Generate

Some will question it

For a school who is a challenging financial position, a short-term strategy Twokin Consulting has suggested to help manage cash flow is to reduce the percentage of the college’s match for employee continuations to the employer-sponsored retirement plan.


Retirement plans often are structured that an once an employee contributes a certain percentage of their salary to the organization’s retirement plan (e.g., 403(a)), the college will match a certain percentage of it. For example, an employee contributes 6% of their salary and the college matches 50 percent of it, or 3%. As reported by Vanguard, the average match in 2021 was 4.5%. Many college plans from Twokin Consulting's experience are much more generous.


In the face of an emergency budget shortfall, a school can suspend or reduce their employer match. It is vital to be transparent on the change and why. If the choice is between laying off campus colleagues or reducing the college’s match, most employees will accept the reduction. The savings can add up quickly. For example, an annual $24 million payroll budget with a 3% match results in a direct college cost of $720,000 per year or $60,000 per month. Suspending or reducing an employer match is is a short-term fix for financial woes since not offering a match in the long-term can impact employee recruitment and retention.


Another alternative that Twokin Consulting has seen for help cash flow is to change the employer contribution from occurring monthly to only once or twice per year.


Twokin Consulting specializes in helping supporting colleges, universities, and nonprofit organizations in brainstorming strategies and ideas for improving operations.


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