This year, believe it or not, many U.S. workers got some good news about their future. Key provisions of Congress’ federal legislation, SECURE 2.0 (Setting Every Community Up for Retirement Enhancement) went into effect, providing important safeguards to protect the retirement savings of workers in the United States. These include mandated automatic enrollment in retirement plans, relaxed eligibility requirements for part-time workers, and matching employer contributions to employee student loan payments — targeted measures that particularly benefit people historically at the losing end of the retirement wealth gap: women, people of color and low-income earners.
Unfortunately, for workers in the nonprofit sector, the news isn’t so good. One of SECURE 2.0’s most generous provisions is the start-up tax credit which focuses on small employers (those with fewer than 100 employees), who are far less likely to offer retirement plans compared with their larger counterparts. The credit incentivizes small employers to start a retirement plan by covering all or most of the associated costs — including set-up fees, employee education costs and employer contributions — for the first few years of the plan. This could mean savings over five years of anywhere from $20,000 for a five-person workplace to well over $100,000 for a 25-person workplace. But Congress has excluded the nonprofit sector from accessing even a single dollar of these benefits. As a result, more than one million nonprofit workers are being left out of this historic opportunity to safeguard their financial future.
This has a particularly serious impact on the nonprofit workforce given its demographics: 90% of nonprofit organizations meet SECURE 2.0’s definition of small employer, and 40% have fewer than five employees. Similar to the private sector, the smaller the non-profit organization, the less likely it is to offer retirement benefits. Women make up 69% of nonprofit workforce staff and people of color make up 53%. And as pay and status drops, the proportion of women and people of color rises. This mirrors the situation in retirement savings. In 2019, white families had, on average, a retirement account balance of $168,000, while the average balances for Black and Latinx families were $38,300 and $27,300, respectively.
The problem arises because the financial incentive is structured as a tax credit. And while it is true that nonprofits don’t pay income tax, they do pay other taxes, including payroll tax. Congress has structured the SECURE start-up credit as only an income tax credit rather than both income tax and payroll tax, a shortsighted approach at odds with their past practice. For instance, in 2010, as part of the Affordable Care Act, Congress offered a tax credit to incentivize small employers to provide healthcare to their workers. This was structured as both an income tax credit and a payroll tax credit, allowing nonprofit employers to benefit as well. The tax credit for offering a retirement plan could be also offered as both an income and payroll tax credit. How can it be that nonprofit workers deserve healthcare but not retirement savings?
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This year, as we mark the 50th anniversary of the Employee Retirement Income Security Act (ERISA), it is important to reflect on the state of retirement security in the United States. ERISA has provided significant safeguards to protect American workers’ retirement savings, but the past 50 years have also seen an increasing retirement savings gap along race and gender lines. While the average retirement account has increased, these gains have largely gone to those who are already wealthy and are the highest earners. Nearly half of American families have no retirement account savings at all.
The nonprofit sector is the country’s third-largest sector and continues to grow. Annually, the nonprofit sector pays more than $65 billion in payroll taxes. Those contributions to Social Security ensure that workers from all sectors who are retiring today are taken care of. We need to make sure nonprofit workers are taken care of as well. As we reflect on the progress made since ERISA’s enactment, let’s ensure that SECURE 2.0 really does support every community by bringing nonprofit workers into the fold.