ABSTRACT
Crafting A Retirement Program
Lessons from the Field
Summary: Two non-profit intermediaries joined together to pilot a retirement incentive and education program for self-employed Appalachian knitters. The following abstract examines the challenges of rural women’s retirement prospects, the pilot retirement program design, the results to-date, and the elements of success that are replicable.
Background: Appalachian By Design (ABD) developed a large network of knitters, weavers and hand finishers who work in their homes throughout the mountains. Our venture was created by and for rural women, and since its incorporation in 1994 became nationally recognized for its creative approach to addressing the isolation and lack of sustainable economic opportunities that have been perennial problems in the region, particularly for women. This strategy fused micro-enterprise development, workforce training, and asset building into a social enterprise model.
The majority of artisans in ABD’s network are women who work part time because of the other responsibilities in their lives, including child care, elder care and supporting family businesses. They are representative of many women in the region who do not have full time jobs, so accumulate smaller Social Security benefits and fewer savings.
Recognizing that the population of women from whom ABD recruits its knitters is among the least likely to be financially prepared for retirement, ABD Steering Committee and Board of Directors had long wanted to establish a retirement plan but had not come up with a mechanism to make it feasible. Cindy Hounsell, Executive Director of the Women's Institute for a Secure Retirement (WISER met with staff and knitters at an ABD Annual Meeting that focused on retirement issues. WISER is a national education and advocacy organization with the mission of improving the long term financial security of women. Her presentation was the catalyst for ABD to develop a pilot retirement program using the model of an Individual Development Account (IDA). Despite a number of technical, financial and legal hurdles, a relatively simple matched savings plan was created with the financial support of WISER, and 12 knitters enrolled in the pilot program, which was launched in the spring of 2003.
Program Design: ABD Board attorney Beth Ferrier evaluated the options from a tax and legal standpoint and concluded that traditional or Roth Individual Retirement Accounts could be used as the savings instruments as long as a knitter had the required earned income, and that the match would be considered a gift to the individual knitter for tax purposes. However, the knitter could not treat the match as additional earned income that would increase their tax deduction, since there would likely be a period of time from when the knitter made the initial deposits until the match was made. The tax code ultimately drove the design of the program.
ABD decided to structure the program using IRAs that would be opened by the knitters themselves at a financial institution of their own choosing. From this point on, ABD made adaptations in the IDA model.
Their decision meant that the program would not be eligible for federal matching funds, so matching funds would have to come from private sources. The structure also did not provide incentive for private funders, since there was no clear tax deduction or credit for the funds they would be contributing for the match. Furthermore, there was no ability to set a defined holding period like IDA funders have traditionally done with collateral accounts, where there is a one- to three-year holding period before the match is made directly to a third party on behalf of the account holder. Finally, the success of the program would depend a great deal on ABD placing full trust in the knitters to deposit and keep the funds in their IRAs, since they would be in control of their accounts, although ABD does verify deposits before providing the match. The only penalties for withdrawing funds to use for purposes other than retirement would be those assessed by the IRS.
Results to Date: During the last two years, ABD/WISER assisted eight knitters establish retirement accounts, each valued now at close to $3000. Six of the participants had no prior retirement savings, and their ages range from 35 to 65. The program has been backed up by financial education seminars that have included presentations and Q&A’s with financial planners, a Social Security Administrator and the introduction of a home study course. The economic demographics of the participants, the mechanics of tracking savings and match incentives, the quarterly financial seminars and the follow-up interviews with the participants are summarized.
Elements of Success: ABD/WISER have extracted the key lessons from the pilot that are considered transferable to other groups that want to increase the assets of rural families. The paper will describe the following elements of the program:
- Secured financial partner who understood the value of experimenting in order to develop working models for replication and policy advocacy.
- Worked within existing constituency. The savers in this program had long term, successful working relationships with ABD. With mutual trust and accountability already established, a program can be formed more quickly and successfully.
- Required commitment of experienced attorney to think through legal and tax issues related to retirement savings and who was willing to provide guidance in the program start-up phase.
- Created a simple program design and administration. This enabled a small organization to carry out the program; most intermediaries like ABD have limited staff and resources, so the program needs to be relatively straightforward to implement.
- Formed a group of savers. There was added value in forming a group of savers because of the exchange of local information about banks, savings strategies, and other financial knowledge. Similarly, people’s recognition that they were not the only ones lacking financial security and savvy reduced the sense of isolation and hopelessness about improving their situation.
Potential for Replication: The economic restructuring in Appalachia continues, with most jobs that are now being created in the region not providing benefits. ABD/WISER have begun to engage and support other intermediaries who work with similar populations and within specific occupation sectors, such as childcare workers, in starting a retirement education and incentive programs. To obtain a summary of target groups, prospective incentive fund sources, legal resources, recruitment material, and status-to-date contact Diane L. Browning.
Other Resources:
Attached is a full report of the first phase of this project:
Crafting An Artisan's Retirement Program
Other resources:
Women's Institute for a Secure Retirement
Corporation for Enterprise Development
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