Nonprofit Employees Boost Their Retirement Savings

They save a higher percentage of their income but appear to accumulate less.

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It's a question that often comes up when I get together with friends who work for nonprofits: Do they sacrifice money for their idealism? Most nonprofits are dedicated to improving the world in some way, but many people who work for them say they could earn more if they defected to the for-profit world. So how much, if anything, are they sacrificing for their career choice?

A new study from Fidelity Investments answers part of that question: At least in the ways they save for retirement, nonprofit workers seem a bit more conservative than their for-profit counterparts—but may have less money to work with. "They tend to put away, in terms of deferral rates, a little bit more than corporate employees. However, their average balance is less than on the corporate side," says John Begley, executive vice president of Fidelity Investments.

On the surface, that description would suggest that (1) nonprofit workers save a higher percentage of their income, (2) their incomes are typically lower than those of for-profit workers, (3) therefore, the nonprofit employees' savings are lower.

But Begley says it is not so simple. Because nonprofit organizations often offer their employees a variety of plan providers, the Fidelity survey may not have included all of the nonprofit employees' retirement accounts. And in terms of income differences, Begley says corporate and nonprofit employees had similar average pay.

Among the report's other key findings:

  • One third of nonprofit employees increased their contributions to workplace savings plans in 2007. Begley attributes this shift to the fact that fewer organizations are offering pensions as well as the rising cost of medical care and uncertainty about the future of Social Security. "Folks see what a burden that could be," he says.
  • Almost half of the nonprofit employees surveyed report that they have over $5,000 in debt, a figure that includes student loan debt but leaves out mortgage commitments.
  • Not enough employees were taking advantage of assistance offered by workplace savings plans, Fidelity says. Over 40 percent did not interact with their plan provider to review their savings and investment plans.
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