The Cost Nobody Renegotiates

This week:

How Virginia rewrote its insurance code so charities can pool health coverage, why nearly 1,500 nonprofits stopped paying state unemployment tax altogether, and what the arrival of pooled 403(b) plans means for the 90% of nonprofits that have never once looked at a group retirement option.
Three quick hits on unemployment math, state retirement mandates you may already be violating, and free cooperative purchasing.
Three AI prompts to model the true cost of a position, build the board memo, and write a total rewards statement your staff will actually read.
Plus a 30-minute board exercise on the costs your organization has never once put back on the table.

Picture a budget review at your own organization. A real one — not the approve-the-packet meeting, but a line-by-line walk through program costs. Every contract over $5,000. Every vendor. Every subscription. Two meetings, and it turns up about $18,000.

Nobody looks at the unemployment insurance line.

That review is hypothetical. The blind spot is not. Nonprofit leaders are trained to scrutinize what it costs to deliver the mission. Very few of us were ever trained to scrutinize what it costs to be an employer — the health premiums, the state unemployment tax, the retirement plan you either have or feel guilty about not having, the office supplies bought at retail. Those costs arrive looking like weather. Fixed. External. Somebody else's decision.

They are not. Nearly every one of them is a structure, and structures can be changed.

Here is what makes this week's stories worth your attention: the three organizations below did not find more money. They changed the arrangement through which they employ people. One state association rewrote a section of the insurance code. A trust founded in 1982 by a dozen nonprofits now saves its members an estimated $20 million a year by using a federal option that has existed since 1972 and that most eligible organizations have never once examined. And a retirement structure that was legally impossible for 403(b) plans before 2022 is now open for enrollment.

None of that shows up in a grant application. All of it shows up in your budget.

A reminder: 20% of net profit from your subscription goes to Rooted, our nonprofit partner. Thank you for making that possible.

Virginia Changed Its Insurance Code So Charities Could Buy Health Coverage Together

For years the arithmetic facing a 12-person Virginia nonprofit was ugly. Group health coverage priced for a group of 12 costs far more per person than coverage priced for a group of 1,200. Small nonprofits either absorbed the premium, pushed more of it onto staff, or dropped coverage — and then wondered why they kept losing people to hospital systems and universities.

The Center for Nonprofit Excellence, Virginia's state association, went after the structure instead of the price. Under § 38.2-3431 of the Code of Virginia, certain "sponsoring associations" may form a benefits consortium — a legal vehicle that lets member employers buy health coverage as one large group. Trade associations could do it. Charitable organizations could not.

Delegate Katrina Callsen introduced HB 353 to add 501(c)(3) charitable organizations to the list. It cleared the House Labor and Commerce subcommittee unanimously in January, passed the full House 97–1 on February 4, 2026, moved through the Senate, was signed by Governor Spanberger in May, and took effect July 1, 2026. A statutory change of about one clause, and one vote against it in the entire House.

That clause is the difference between a nonprofit with nine employees being rated as a group of nine, and being rated as part of a pool of several thousand.

Here is what makes it replicable. The bottleneck was not money and it was not willingness. It was a definition in an insurance statute that no one had revisited. Most states have an equivalent provision governing who may sponsor a multiple employer welfare arrangement or benefits consortium, and in most states nobody has checked whether charities are inside or outside the definition. Your state association can find out in an afternoon.

Do this: Email your state nonprofit association and ask one question — whether 501(c)(3) organizations are eligible to participate in a benefits consortium or association health plan under your state's insurance code, and if not, whether anyone has ever asked the legislature to fix it.

Sources: Virginia HB 353 (2026 Session), Virginia Legislative Information System; § 38.2-3431, Code of Virginia; Center for Nonprofit Excellence announcement of the governor's signature, May 2026; National Council of Nonprofits coverage.

Nearly 1,500 Nonprofits Stopped Paying State Unemployment Tax — Legally, and Since 1972

Most nonprofit employers pay state unemployment insurance tax the same way a restaurant or a hardware store does: a percentage of payroll, quarterly, forever, regardless of whether anyone ever files a claim.

Federal law has never required that. Since 1972, 501(c)(3) organizations have been permitted to opt out of the state unemployment tax system and instead reimburse the state dollar-for-dollar for benefits actually paid to their former employees. Pay taxes on the possibility of claims, or pay for the claims themselves. If your organization has low turnover and rarely generates a valid claim, the second arrangement costs dramatically less.

The obvious hazard is that reimbursing status turns a smooth, predictable tax into a lumpy, unpredictable liability. A single layoff round can produce a bill that arrives all at once. That risk is precisely what 501(c) Agencies Trust was built to absorb.

Founded in 1982 by a dozen nonprofits, it now serves nearly 1,500 participating organizations, pooling reserves and handling claims administration so that individual members get the savings of reimbursing status without carrying the volatility alone. The Trust reports collective savings of an estimated $20 million a year against what its members would otherwise pay in state unemployment taxes, with individual members typically reducing unemployment costs 30% to 60%.

Treat those savings figures as what they are — numbers published by an organization that sells the alternative, and worth testing against your own claims history rather than adopting on faith. The underlying legal option, though, is not a vendor's claim. It is federal law, and it applies to you whether or not you ever join anything.

Here is what makes it replicable. This is not a new program. It is an election on a form. Every 501(c)(3) employer in every state has the same option available, and the only reason most have not exercised it is that nobody ever told them it existed. The analysis takes an hour and the switch, in most states, happens at the start of a calendar year.

Do this: Pull your last four quarters of state unemployment tax payments and your actual claims history over the past three years. If you paid substantially more in tax than the state paid out on your behalf, the reimbursing election deserves a real look — and a conversation with your accountant about cash flow before you make it.

Sources: Federal Unemployment Tax Act, 26 U.S.C. § 3309 (reimbursing election for 501(c)(3) employers, enacted 1972); 501(c) Agencies Trust, member and savings figures as published by the organization; your state workforce agency's guidance on the reimbursing employer election.

Retirement Plans You Join Instead of Build: Pooled 403(b)s Arrive

Ask a nonprofit ED why the organization has no retirement plan and you will usually get some version of the same answer: we looked into it, the fees were high, somebody has to be the fiduciary, and we are eleven people. The 2026 Nonprofit Total Rewards Practices Survey, drawing on more than 350 organizations, found that just 10% have ever explored a pooled or group retirement option. The structural alternative exists. Almost nobody has looked at it.

Pooled Employer Plans were supposed to solve exactly this. A PEP lets unrelated employers join a single plan run by a professional pooled plan provider, who takes on most of the administrative and fiduciary work. Congress authorized PEPs for 401(k) plans in 2019 — and left 403(b) plans, the vehicle most nonprofits actually use, out of the structure entirely. SECURE 2.0 fixed that in 2022.

The market took a while to build. It is arriving now. Ascensus launched a National Nonprofit 403(b) PEP in June 2026. Equitable opened an ERISA 403(b) PEP in April 2026. Transamerica and Fiducient have moved into the same space. For a small nonprofit, the practical change is that starting a retirement plan stops being a procurement project and becomes an enrollment decision.

Here is what makes it replicable. The barrier that stopped most small nonprofits was never the employer contribution — many PEP participants start with no match at all. The barrier was fiduciary exposure and administrative load falling on an ED who already does payroll, HR, and grant reporting. A PEP moves most of that to the pooled plan provider. That is a different question than "can we afford a match," and it is worth asking separately.

Do this: If you have no retirement plan, ask your payroll provider whether they participate in or can refer you to a 403(b) PEP, and get the all-in participant fee in writing before you compare anything else.

Sources:SECURE 2.0 Act of 2022, § 106 (403(b) pooled employer plans, effective for plan years beginning after December 31, 2022); Ascensus National Nonprofit 403(b) PEP announcement, June 29, 2026; Equitable Retirement Access ERISA 403(b) PEP, April 9, 2026; 2026 Nonprofit Total Rewards Practices Survey, Nonprofit HR.

Run the Unemployment Number Before September

Your state unemployment tax rate is set from an experience rating most EDs have never looked at. If your turnover is low, you are almost certainly paying for claims you never generate — and the election to switch usually has to be filed before the start of a calendar year, which means the decision window for 2027 is this fall, not next January.

Action: Pull four quarters of SUI/SUTA payments from your payroll reports. Pull three years of claims actually charged to your account from your state workforce agency portal. Put both numbers in one email to your accountant with the question: "Would reimbursing status have saved us money over this period, and what would it cost us in a bad year?"

ROI: Nonprofits that switch commonly report 30–60% reductions in unemployment costs. For an organization with a $600,000 payroll paying a 2% rate, that is roughly $3,600–$7,200 a year — recurring, with no program tradeoff.

Time: 90 minutes to gather, one email to send.

Check Whether Your State Already Requires You to Offer Retirement

Auto-IRA mandates have spread quietly, and nonprofits are not exempt. California's CalSavers reaches employers with one or more eligible employees, who must either offer a qualifying plan or register; the deadline for employers with one to four employees passed December 31, 2025, and employers that first report having employees in 2026 have until December 31, 2026, with penalties running $250 per eligible employee once noncompliance continues 90 days past notice, rising to a cumulative $750 per eligible employee after 180 days (penalty schedule).

Illinois Secure Choice covers employers with five or more employees in every quarter of the prior year that have been in business at least two years, at $250 per employee in year one and $500 per employee per year thereafter, enforced by the Illinois Department of Revenue. Similar programs are live or phasing in across more than a dozen states, Oregon, Colorado, Connecticut, and Maryland among them.

Action: Search "[your state] auto IRA employer mandate" and confirm three things — whether your state has a program, whether your employee count triggers it, and whether your deadline has passed. If you already sponsor a qualifying plan, file the exemption; that is not automatic.

ROI: Avoided penalties alone. Ten eligible employees under the Illinois schedule is $2,500 in year one and $5,000 every year after.

Time: 30 minutes.

Join a Cooperative Purchasing Program — Free, and Most Nonprofits Qualify

Cooperative purchasing organizations run competitive solicitations once, then let member agencies buy off the resulting contracts without running their own procurement. Sourcewell charges 501(c)(3) organizations nothing to participate — no fee, no commitment, no obligation to buy; the model is vendor-funded rather than member-funded, and Sourcewell reports roughly 50,000 participating government, education, and nonprofit entities. OMNIA Partners and NASPO ValuePoint operate on similar terms. Cooperatives generally cite savings of 15–20% on contracted categories — check that against your own current pricing rather than assuming it — and the contracts cover unglamorous things nonprofits actually buy — vehicles, furniture, technology, facilities services, office supplies.

Action: Register as a Sourcewell participating agency using the online form, then register with OMNIA Partners. Then, before your next purchase over $2,500, check whether a cooperative contract already covers it.

ROI: On $40,000 of annual non-program spending, 15% is $6,000. Registration costs nothing.

Time: 45 minutes to register.

Disclosure: Risk Alternatives has no relationship with Sourcewell, OMNIA Partners, NASPO ValuePoint, or any organization named in this issue, and receives nothing from any of them.

Model What One Position Actually Costs You

Salary is the number that gets discussed. In most nonprofits it is only 70 to 80 percent of what the position actually costs. Benefits, employer payroll taxes, unemployment insurance, workers' compensation, technology, training, and the fully loaded cost of the time your ED spends supervising all sit outside the line item — which is why organizations underprice grant budgets and underestimate what a vacancy is really costing them.

Prompt:

You are an expert nonprofit finance analyst. I am going to describe one position at my organization and I want you to build a total cost of employment model for it.

Position: [title].

Annual salary: [].

State:[state].

Our organization has [N] employees and an annual budget of [].

Benefits we currently provide: [list, including employer share of health premium, retirement contribution, paid leave].

Build a table showing, for this one position: base salary; employer FICA; federal unemployment tax; state unemployment tax at our rate of [rate]; workers' compensation at our rate; employer share of health premium; retirement contribution; and any other quantifiable employer cost. Give me the total and the multiplier over base salary.

Then do three things. First, tell me which of these costs are structurally negotiable — meaning the amount depends on an arrangement we chose rather than a rate set by law. Second, flag any cost where my figure looks out of line with typical nonprofit ranges and tell me what range you would expect. Third, tell me what data I would need to gather to make this model accurate rather than approximate, and be specific about which document each number comes from.

Why this works: The three follow-up instructions are what turn this from a calculator into an analysis. The "structurally negotiable" question is the one that surfaces the unemployment and health-plan decisions this issue is about, and the final instruction forces the model to admit what it is estimating rather than presenting guesses as findings. Verify every output against your actual payroll records before it goes anywhere near a board packet or a grant budget.

Draft the Board Memo on Changing Unemployment Status

Reimbursing status is a real decision with a real downside, and it belongs to the board, not the ED. Most EDs never bring it forward because framing the tradeoff honestly takes more time than they have.

Prompt:

You are drafting a decision memo for the board of a 501(c)(3) organization. Audience: [N] board members, [N] with finance backgrounds, [N] with HR expertise. Length: one page.

The decision: whether to elect reimbursing employer status for state unemployment insurance instead of continuing to pay state unemployment tax.

Our data: annual payroll [insert]; current state unemployment tax paid last year[insert]; unemployment claims charged to our account in the past three years [$ and count]; current operating reserve [insert]; staff size [insert]; average annual turnover [N employees].

Structure the memo as: the decision being asked for; the current arrangement in two sentences; the alternative in two sentences; the financial case with our actual numbers; the risk case, including the worst realistic scenario — a layoff or reduction in force — with a dollar estimate; what would have to be true for this to be a bad decision; and a recommendation with the specific motion language.

Write in plain English. No consultant filler and no phrases that sound like they came from a management article. Where you are uncertain about state-specific rules, say so explicitly rather than guessing, and list what we need to confirm with our state workforce agency.

Why this works: "What would have to be true for this to be a bad decision" is the instruction that keeps the memo from becoming advocacy. A board asked to approve a change deserves to see the failure mode before the recommendation. The explicit instruction to flag state-specific uncertainty matters here more than usual — unemployment rules genuinely vary state to state, and a confident-sounding wrong answer in a board memo is worse than no memo.

Write the Total Rewards Statement Your Staff Will Actually Read

Your organization probably spends 25 to 35 cents on top of every salary dollar, and most of your staff have no idea. That is not their failure. Nobody has ever shown them. The usual fix — an HR "total rewards statement" — reads like a benefits brochure and gets deleted.

Prompt:

Write a one-page personalized total rewards statement for an employee of a small nonprofit. Tone: warm, direct, honest — not corporate HR. Read it aloud in your head; if a sentence sounds like a brochure, rewrite it.

Employee: [name], [title]. Salary: [$].

Employer-paid items and annual values: [health premium employer share $], [retirement contribution $], [employer payroll taxes $], [paid time off, in days], [professional development budget $], [any other benefit].

Structure it as: a short opening that says plainly why we are sharing this; a clear list of what the organization pays on top of salary with real dollar figures; the total; then a short closing paragraph in the voice of the executive director acknowledging honestly that we cannot match private-sector salaries and naming what we can offer instead.

Rules: no jargon, no acronyms without explanation, nothing that sounds defensive, and do not claim the organization values people more than money — show the number and let it speak.

Why this works: The rule against defensiveness is doing the heavy lifting. Total rewards statements fail when they read as an argument for why the salary is adequate. Stating the number and stopping is more persuasive and more respectful. Note that this prompt is about communicating compensation, not setting it — check the arithmetic yourself before anything goes to staff, because a wrong number here damages trust faster than silence would.

The Never-Renegotiated List

Most boards review the budget every year and re-examine almost nothing in it. Line items get approved as a set. The question "should this cost this much?" gets asked about new spending and almost never about spending that has been in the budget since before the current board arrived.

This 30-minute exercise surfaces those costs.

What makes it worth trying: It requires no preparation from board members, no financial expertise, and no advance reading. It produces a short list of specific, assignable items rather than a general resolution to be more cost-conscious. And it tends to surface at least one cost that genuinely surprises the room — which is the point.

How to run it (30 minutes):

Setup (5 minutes). Bring one page: every recurring cost the organization pays that is not salary and not direct program delivery. Insurance, unemployment tax, health premiums, retirement plan fees, rent, software subscriptions, audit fee, bank fees, payroll service, office supplies, utilities. Dollar amount and the year the current arrangement started, if you know it. Do not editorialize.
Round one (10 minutes). Ask each board member to mark, silently, the three items they would most want to understand better. No discussion yet. Collect the marks on a flip chart or shared screen so the room sees where attention clusters.
Round two (10 minutes). Take the top three vote-getters. For each, ask exactly one question: "When did we last put this out to bid, renegotiate it, or seriously consider an alternative?" Record the answer. "I don't know" is a complete and useful answer — write it down as it was given.
Close (5 minutes). Assign each of the three to a named person with a date. Not "look into it." Something like: "Marcus will bring the health plan renewal quote and one comparison quote to the October meeting."

In-person: Use paper and dots. The silent voting round matters — if the finance chair speaks first, the exercise becomes the finance chair's opinion.

Virtual: Use a poll for round one rather than chat, so votes are simultaneous rather than sequential. Share the cost list on screen throughout; do not send it in advance, because the value comes from the room's unrehearsed reaction.

Watch out for: Two failure modes. The first is the board treating this as an audit of the ED's competence — say plainly at the outset that most of these arrangements predate everyone in the room and that the question is structural, not personal. The second is the exercise producing a long list of small items. Cap it at three. A board that assigns three costs and actually reviews them beats a board that lists fifteen and reviews none.

You'll know it worked when: At the next meeting, someone brings back a number that is different from the one on the original page — and the board asks what else on that list has never been tested.

Three most-good stories, one shape. A state association read an insurance statute and found a definition that could be amended. A group of nonprofits in 1982 read the federal unemployment code and found an election most eligible organizations still have not made. A retirement structure sat legally unavailable to 403(b) plans until a 2022 statute changed one paragraph, and the products built on it opened for enrollment this spring.

None of those changed what any of these organizations do for the people they serve. They are all the same move: treating the cost of being an employer as a decision rather than a condition.

Your program budget gets defended line by line every year, because funders ask. Nobody asks about the unemployment line. So what would happen if somebody did?

See you next week.

— Ted

P.S. Thanks again for supporting Rooted with your subscription.