Closing the wealth gap: New approach to bolster retirement security for nonprofit workers
There needs to be a multi-faceted approach, spanning policy reform, organizational change, individual savings, and expanded philanthropic support, according to Just Futures’ George Guerrero.
Many employees struggle to achieve financial security in retirement, particularly in light of Independent Sector data that shows many employees face daily choices like making car payments or medical payments, and find themselves unable to set aside adequate funds to retire with dignity. This situation threatens the long-term stability of a sector that contributes immensely to society’s well-being.
George Guerrero
Q: What is the approach that is needed to bolster retirement security for nonprofit workers/?
A: First is a federal policy change. America’s nonprofit workforce, which accounts for a $65 billion payroll, was overlooked in the SECURE 2.0 Act because the generous tax credits designed to help organizations establish plans were only made available to for-profit entities, he said. The “Small Nonprofit Retirement Security Act of 2024,” co-sponsored by Senators James Lankford (R-OK) and Catherine Cortez Masto (D-NV), seeks to correct this oversight and would extend the valuable retirement plan subsidies, through payroll tax credits, to nonprofit organizations.
Second, non-profit employers can take proactive steps. By offering retirement plans to part-time workers, covering administrative costs typically borne by plan participants, and providing non-elective employer contributions, organizations can significantly improve their employees’ retirement prospects. These measures not only benefit workers but also enhance the organization’s ability to attract and retain talented staff.
For individuals without access to employer-sponsored plans, personal options such as Individual Retirement Accounts (IRAs) can help. Just Futures recently launched an IRA product that aligns with social justice principles, offering a way for nonprofit professionals to save while supporting a belief system with which they identify.
Q: What are the struggles that many employees in the nonprofit workforce face to achieve financial security in retirement?
A: From climate advocates and teachers, to social justice champions and arts protectors, America’s nonprofit workers are struggling to make ends meet. A new report, [Alice in the Nonprofit Workforce: A Study of Financial Hardship], analyzes US Census data on 13.9 million nonprofit employees and found 22% of them live in households that can’t cover the cost of essentials like housing, food, and health care, despite having steady full- or part-time employment. Further, nonprofit salaries have not maintained pace with the effects of post-COVID inflation, making it harder for workers to save.
For these workers living paycheck to paycheck, the idea of retirement or saving for the future has been a dream. We have also found that smaller staffed nonprofits are less likely to offer retirement benefits.
Q: What can be done to bolster retirement security for nonprofit employees?
A: Saving consistently and early-on in one’s career are among the biggest determining factors in an individual’s ability to accumulate sufficient funds to support themselves in their senior years.
We see a multi-faceted approach, spanning policy reform, organizational change, individual savings, and expanded philanthropic support as key steps in strengthening retirement security for nonprofit workers:
- Policy reform: The nonprofit sector was overlooked in SECURE 2.0, key legislation aimed at incentivizing employers to offer retirement benefits. Unfortunately, generous tax credits designed to help organizations establish plans are only available to for-profit entities. We strongly support the bipartisan Small Nonprofit Retirement Security Act of 2024 … which seeks to correct this oversight and extend the valuable retirement plan subsidies to nonprofit organizations through payroll tax credits.
- Organizational change: We encourage nonprofit organizations themselves to effect positive change. By taking proactive steps like offering retirement plans to part-time workers, covering administrative costs typically borne by plan participants, and providing non-elective employer contributions, nonprofits can significantly improve their employees’ retirement prospects. These measures not only benefit workers but also enhance the organization’s ability to attract and retain talented staff.
- Individual savings: For individuals without access to employer-sponsored plans, we recommend exploring personal options such as Individual Retirement Accounts (IRAs). At Just Futures, we recently launched our own IRA product that mirrors the offerings of our values-driven employer sponsored retirement plan solutions, providing a way for nonprofit professionals to save while aligning with belief systems with which they identify and work towards.
- Expanded philanthropic support: We call on the philanthropic community to broaden their support. Unrestricted funding is crucial so nonprofits can choose to direct monies toward employee benefits programs, including retirement savings.
Q: How was the nonprofit workforce overlooked in the SECURE 2.0 Act?
A: SECURE 2.0 provides tax credits of up to $5,000 for three years to qualifying small businesses who start SEP, SIMPLE, defined benefit, and defined contribution plans, like a 401(k). Additionally, a $500 credit for three years is available for businesses t hat add auto-enrollment to the company plan. Mechanically, these businesses would receive their financial benefit when they file their taxes, as these credits would directly reduce their business income tax liability of a given tax year. But because nonprofits are exempt from federal income tax they cannot access the credits.
Q: How can the Small nonprofit Retirement Security Act of 2024 help nonprofit organizations?
A: The Small Nonprofit Retirement Security Act of 2024 … is a bill that seeks to correct what amounts to an operational oversight of SECURE 2.0, and extends the economics of the tax credits to nonprofit organizations through their respective payroll tax liability. The proposed legislation would give charitable organizations the same incentives made available to for-profit businesses through SECURE 2.0 to provide a retirement plan and to institute an automatic enrollment feature.
Q: Why should employers offer retirement plans to part-time workers?
A: Broadly speaking, taking a more universal approach to eligibility generally results in more equitable outcomes in terms of retirement savings. An example of this approach would be the inclusion of part-time workers. According to the US Bureau of Labor Statistics (BLS), women have worked part-time at nearly double the rate of men in the United States since the 1990’s.
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An analysis on this data by the Center for Economic and Policy Research attributes this difference to what the BLS refers to as “noneconomic reasons,” primarily driven by gender inequality in terms of the share of family/personal obligations, including child care. We believe every person deserves the opportunity to retire with dignity. Understanding unintended inequities embedded in retirement plan design can go a long way towards meeting that standard.
Q: How does Just Futures approach retirement benefits?
A: Just Futures is an investment advisory firm founded by movement activists and nonprofit veterans and owned by people of color. We connect foundations, nonprofits, and ordinary people with values-aligned financial solutions that build towards a more inclusive and sustainable economy for all.
Just Futures approaches retirement benefits with the belief that everyone deserves to retire with dignity. We built a solution that we feel better reflects the needs of a diverse America, where individuals can build towards greater financial security using financial solutions that prioritize community well-being, economic prosperity, racial equity, and environmental justice.
Q: How can employees without access to employer sponsored retirement plans benefit from Just Futures’s new IRA product?
A: Nonprofit workers who do not currently have access to an employer sponsored plan can benefit from the same fiduciary and values-informed investment approach Just Futures utilizes in the construction of our employer sponsored plan solutions. We offer both Traditional and Roth IRAs, into which an individual can also rollover old retirement accounts to manage retirement savings in a single place.
Our IRA offering includes model solutions that are aligned with an individual’s anticipated year of retirement (most commonly known as Target Date Models) as well as ones that are anchored to specific allocations to stocks and bonds (most commonly known as Risk Based Models).
Target date models: These models automatically adjust the asset allocation based on a specified retirement year, becoming more conservative as the date approaches to help manage exposure to risk.
Risk-based models: These models maintain a fixed asset allocation to stocks and bonds that do not change over time, aiming for consistent risk exposure. Investors can choose the version that best aligns with their risk tolerance.
Our fiduciary screens include factors like risk-adjusted performance, cost, and style consistency to uphold our responsibility as stewards of our clients’ long-term financial interests. Our screens across 75+ values metrics help them invest in a way that’s more aligned with the issues they care about.