Advisory Archives - Urish Popeck

Enhancing Your Nonprofit Organization In A New World Norm

Posted on July 2021July 2021 by info

By Vivian Gant

During the height of the COVID-19 pandemic, the future was still very uncertain. Many nonprofits found themselves applying for government assistance, such as Paycheck Protection Program (PPP) loans, as they braced for continued negative financial impacts. Although the road ahead is still not completely clear, organizations are now looking to the future and considering how to ensure they are set up for success in both the near and long term.

For some organizations, this includes facing a very different challenge: considering how to use a surplus of funds, many of which came from an increase in contributions amid the pandemic as donors looked to support nonprofits’ missions. This leads to a completely different set of questions about how to maximize this advantageous position. The post-pandemic landscape is an opportune time for nonprofits to use these extra funds to re-invest not only in their organization but also their people and, ultimately, their mission.

Although there are a number of ways for nonprofit organizations to reinvest for growth, they should consider focusing on the following:

Enhance Cybersecurity

With cyberattacks on the rise, it has never been more critical for nonprofits to ensure they – and their information – are protected. Nonprofits have access to sensitive donor data, which can make them a target. Organizations should consult with experts to study their current security environment, locate vulnerabilities and make recommendations for improvements. These organizations can then upgrade their current security in order to reduce the chances of an attack, which can lead to diminished trust with donors and stakeholders.

Strengthen Tech Capabilities
As the pandemic taught us, technology helps us stay connected. Nonprofits can use this time to reassess the tools they have in place, those they added amid the pandemic and those they need for future success. Investing in tools that will allow the organization to operate in a hybrid work model, communicate with donors when they can’t be face to face and streamline internal operations will foster better communication and strengthen relationships. The connected workplace that became commonplace amid COVID-19 is not likely to go away anytime soon – in fact, nonprofit leaders should only expect to see an increase in digital tools moving forward. Investing soon and doing so strategically will ensure nonprofits are not left behind in a technology-first future.

Improve Internal Infrastructure

Enterprise resource planning (ERP) systems have come a long way. Nonprofits can reinvest in the organization by updating their current ERP systems, which can be used to manage day-to-day activities and streamline their internal processes. Upgrading to the latest ERP technology can assist not only with fundraising activities, but also with event management, online payment processing for donors, marketing efforts and more. ERP systems can typically also automate back-office functions, which can help to eliminate redundancies in the organization’s overall operations, helping it to stay focused on its mission.

Establish a Board-Designated Endowment

Another way nonprofits can utilize excess funds is to set up a board-designated endowment. This allows nonprofit boards to set aside funds specifically for board initiatives.

These funds can be invested with a trusted financial institution. To do so, the board should create an investment policy that outlines how the funds are to be invested and establishes what these funds are to be used for – which should align with the organization’s mission.

Invest in Human Capital

The pandemic was a trying time for employees. Compensation increases were likely limited during 2020 as nonprofits attempted to cut costs and save for the unknown, and a lack of in-person interaction left little room for team bonding or training opportunities. Investing in programs or events that promote team bonding or providing opportunities for ongoing education can help make employees feel valued and build trust and goodwill between leadership and staff.

In these unique times, nonprofits should be creative in ways that will help not only their mission but also their workforce. Financial decisions made by nonprofits during this time will likely have lasting effects for years to come, so thinking ahead about how to reinvest in your organization is key.

Protect Cash Flow By Reviewing Expenses And Plan Design

Posted on July 2020 by info

Managing cash flow is an ongoing priority for any business. Protecting an organization’s cash flow in times of economic distress is paramount. To retain liquidity in the short term, many organizations are examining their retirement plans for flexibility in cash outflows.

Adjusting or temporarily putting a hold on employer contributions to retirement plans stands out as a prominent option for some, but other less obvious tools can help plan sponsors operate more efficiently during a crisis as well.

Before making any changes, employers need to consider both the short-term and long-term consequences of these actions. While such decisions can provide some immediate cash flow relief, they can also increase long-term costs or negatively impact an organization’s employee morale and competitive positioning.

Eliminating or Suspending the Employer Match

Eliminating or suspending the employer match, while a potentially effective tool employers can use to shore up cash, may not be an option, depending on how the plan document is written. Plans that include an annual safe harbor 401(k) contribution may include restrictions relating to the suspension or elimination of these contributions. Plan documents must be thoroughly reviewed before reaching a decision.

Even if eliminating or suspending the employer match is an option, employers should approach these decisions with care as they may negatively affect an organization’s ability to attract new employees. This potential backlash may be the reason many employers are hesitating to suspend contributions, even as we anticipate a continued quarantine. A recent survey by the Plan Sponsor Council of America (PSCA) showed that only 16 percent of benefit plans expect to suspend contributions.

Eliminating Inactive Participants to Reduce Administrative Costs

Another option could be to reduce the number of participants in a plan to archive a lower administrative cost in upcoming quarters. Employers can achieve this is by removing inactive participants from the plan. The Internal Revenue Service (IRS) allows plan sponsors to cash out inactive participants with $1,000 or less in their accounts, and plan sponsors don’t need permission from the individual to do this. In addition, plan sponsors can roll accounts with balances of $5,000 or less into Individual Retirement Accounts (IRAs).

Participants with more than $5,000 in their accounts can’t be forced out of the plan, but plan sponsors are permitted to contact such participants and inquire if they would like to be cashed out. As always, it’s important for plan sponsors to refer to their plan documents before seeking to reduce the number of inactive participants or issue distributions.

Review “Lost Money” in the Plan

Several other tools exist that may help plan sponsors operate more efficiently:

Forfeitures: Partially vested employees who terminate employment are the most common source of forfeitures. Plan sponsors most commonly use forfeitures to offset employer contributions, but they can also be used to pay for certain permitted plan expenses.
ERISA Spending Accounts: ERISA spending accounts present an opportunity to reduce the total costs charged to the plan. If there isn’t a spending account already, plan sponsors should communicate with service providers to determine whether there may be an opportunity to negotiate one.
Evaluate Fees: Plan sponsors have a fiduciary obligation to monitor fees to ensure they are reasonable. Plans should examine their investment, administrative, and consulting fees to determine if saving cash may be possible. Now may be a good time to reach out to service providers to ask for fee reductions. Plan sponsors can also consider shifting some administrative costs, such as audit expenses, from the company to the plan and using forfeitures or ERISA spending accounts for these costs.
Changing Eligibility and Matching Provisions: Changing eligibility requirements and / or matching provisions can also help to conserve cash. For example, plan sponsors could require employees to work for at least one year before becoming eligible for a retirement plan.

Insight: Evaluate Cash Conservation Tools Thoughtfully

When examining the potential tools at your disposal for conserving cash, it’s important that employers don’t make these decisions in a vacuum. While certain actions can be taken to improve cash flow now, they could lead to greater expenses in the long term—and changes to retirement savings plans may ultimately weaken an organization’s ability to recruit and retain talent.
Your representative is available to help evaluate your plan and look for opportunities to create valuable flexibility while still being mindful of the long-term impacts of these changes.

Main Street Lending Program Update

Posted on June 2020 by info

On June 8, the Federal Reserve released revised term sheets for its Main Street Lending Program (MSLP), ahead of the program becoming officially operationalized. The MSLP aims to increase the flow of credit to small and medium-sized businesses that were in good financial standing prior to the COVID-19 crisis.

Over the past few weeks, the Federal Reserve held several teleconference sessions to explain the MSLP and to seek feedback on previously released program details from lenders and borrowers. With input from these sessions and other sources, the Federal Reserve has further adjusted the financial terms and conditions of the various lending facilities to attract and meet the needs of a broader range of borrowers and lenders.

Notable changes to the MSLP include the following:

Lowering the minimum loan amount for certain facilities from $500,000 to $250,000;
Increasing the maximum loan size for all facilities;
Increasing the loan terms from four to five years;
Extending the repayment period for all loans by delaying principal payments for two years, rather than one; and
Raising the Federal Reserve’s participation to 95% for all loans.

Key Eligibility Criteria and Loan Details

How to Apply for a Main Street Loan

A Main Street loan application can be requested at a federally insured lending institution, which will apply its own underwriting criteria. In addition, the Federal Reserve also released several application forms and agreements that must be completed in conjunction with the primary loan application. The documents include borrower certifications and covenants.

The Federal Reserve cautions that “eligible borrowers should contact an eligible lender for more information on whether the eligible lender plans to participate in the program and to request more information on the application process.” The Federal Reserve expects the MSLP to open for lender registration soon, after which participating banks will begin offering loans.

Please refer to the Federal Reserve’s Main Street website for the latest program information.