Retirement is a Race Issue with Chitra Aiyar. What comes up for you when I say retirement? Are old people golfing in Florida? Think again.
Join me and my dear friend Chitra Aiyar as we discuss why retirement is a generational/racial wealth gap issue, and what nonprofit employers can do to support workers.
Working in the nonprofit sector shouldn’t have to mean sacrificing your long-term financial well-being.
Who should listen to this podcast:
-Employees at nonprofits, particularly if you are young and do not come from generational wealth.
-Nonprofit employers who are concerned about the long-term for their employees, especially those who employ folx of color.
-Funders and nonprofit associations who are interested in racial justice and equity.
In short, everyone.
To learn more about the report, check here: https://www.justfutures.co/rrfa-report
To connect with Chitra: https://www.linkedin.com/in/chitra-aiyar-3099507/
QUOTE FROM CHITRA:
“All of this cultural competency means nothing if people aren’t building wealth, right? So if you actually wanna put your money where your mouth is, we should be subsidizing retirement plans for smaller organizations at a sector-wide level, as opposed to asking every organization to figure it out on their own.”
Episode Transcript
Rhea Wong 0:07
Welcome to Nonprofit Lowdown. I’m your host, Rhea Wong.
Rhea Wong 0:10
Okay. Hey, podcast listeners, it’s Rhea Wong with you once again with nonprofit lowdown. Today, my guest is Chitra Aiyar. She is a multi-time guest, one of my favorite people to chat with. And today we’re talking about retirement for nonprofit folks, because you know what? at some point y’all we’re gonna want to retire. I want to retire right now, to be honest. But so often I think in nonprofits, we don’t necessarily think about retirement or how we can have retirement benefits, or what our retirement investments are, that are socially progressive. So we’re going to talk about all the things today. So welcome to Chitra.
Chitra Aiyar 0:48
Thank you, very excited to be here.
Rhea Wong 0:51
I know you were here talking about tax things before.
Chitra Aiyar 0:55
So ultimately, this is also tax things, right? The reason that retirement is different than just savings is because of retirement or tax deferred savings, meaning you don’t get taxed when you make interest, which is why retirement savings can add up to so much more. And it’s just, everything is taxed.
Rhea Wong 1:14
Okay, everything is taxes. Chitra. Okay, before we jump into the nitty gritty tell us a little bit about yourself and your current mission in life, which I find so fascinating.
Chitra Aiyar 1:25
So my name is Chitra, I have spent the entirety of my career besides one summer job in high school, I spent the entirety of my career in the nonprofit sector in international development, legal services, and then more recently, as executive director of a youth development organization. I am also an attorney. My big excitement over the last couple of years when I stepped down from being an executive director was thinking about how nonprofits can access resources and public benefits and things like that. And so it started with PPP loans and expanded to tax credits, which I did a previous session on, I’m still very obsessed with that and has now expanded to include retirement savings.
Chitra Aiyar 2:11
So part of it is just thinking about what are these public goods or things that we should consider as public goods that have become privatized? And what does it mean for us to be able to access them? And what does it mean for people who have a lifelong career in the nonprofit sector to be able to live comfortably and to not limit that option of being in the nonprofit sector as meaning that you either come from money, marry into money or have to survive on GoFundMe after you retire?
Chitra Aiyar 2:41
So I think part of the question in my mind is how do we make this work actually sustainable for the long term and allow it to be reflected that diversity of people who the nonprofit sector seeks to serve as opposed to people who have wealth and have the option of working in the sector.
Rhea Wong 2:59
I love that so much because I as as you know, one of my deep fears is that I will be old and living by the side of a river in a box with a bunch of cats. I don’t even have cats, but that was the overarching fear in my mind of having no money. So talk to us about retirement savings and why this is such a critical piece of wealth building.
Chitra Aiyar 3:21
So I think it’s really important, I think, terminology wise, we started talking about a racial wealth gap, or I would even say, a generational wealth gap, as opposed to just an income gap. So reflecting sort of an awareness that it’s not just about salary, it’s about what you have outside of what you’re earning. So wealth is what you have in excess of the income that you bring in, over what you owe. And in terms of opportunities to build wealth, like the most popular way of being wealthy is coming from wealth, right? Or marrying into wealth, right? Those are the like that 90% of people who have wealth, it comes from there.
Chitra Aiyar 3:58
Outside of that the ways that one builds wealth is through real estate historically, which I think has questions now. It is through working at places and making a really high income that is beyond your expenses, getting stuck options, things like that. And then the final thing is retirement. And the reason wealth becomes important is being able to live after you retire, right? So after you no longer have that salary, what are you surviving on? And then if one wants to be really ambitious, is leaving something for your children, whether that be having funds to cover their college expenses, helping them with a down payment on their home, having extra money if you need to help out your parents, but if we think about wealth, it is extra, but extra could just be for you.
Chitra Aiyar 4:45
If we think about these pathways to wealth building, essentially if you’re in the nonprofit sector, right? The only way really is retirement savings because having the money to invest in again in real estate, which I have some questions about or making so much money, or stock options, or being an entrepreneur, right? These things are foreclosed by the nature of the nonprofit sector, but retirement is another way of building wealth, but it becomes particularly important for those in the nonprofit sector since they aren’t going to make the kind of salary nor have ownership nor have stock options, right, that’s available to people in the private sector.
Rhea Wong 5:23
It’s so interesting, too, because I think the reluctance perhaps of investing in retirement savings has a lot to do with, I would say, a general illiteracy, like around finance, like, at no point in my schooling, did I ever have a financial literacy class, right. And I can remember when I was an ED, I brought someone in, and I talked to all of my staff members about the fact that we had a matching, like 5% matching, and I was like, put money in, even if it’s like, $100 a month, and like nobody did it. And it drove me crazy. And I think part of it was they were in their 20s, I thought they would kick the can down the road, but talk to us a little bit about how we can use retirement benefits as a retention tool for staff members.
Chitra Aiyar 6:09
Sure. So I’m gonna take a step back. And I think that what you’re saying about financial literacy came up a lot, so I’ve just finished and it’s coming out as report soon I got commissioned by a group called just features to do a report on the nonprofit sector. And what are the challenges around retirement and a lot of people, especially those who are in charge of the retirement plans at their organization talked about a lack of financial literacy, why don’t our younger staff want to participate? And if they’re not excited about it, it can’t really be a tool for retention, because they’re not interested.
Chitra Aiyar 6:45
I think a useful historical point is that this idea of financial literacy and retirement is fairly recent, right? In the last 25 years, historically, pensions, which were covered by a company, and if you worked, you got a pension, that the employer was in charge of putting in money, or withholding money from your salary, they were in charge of investing it, and then you are guaranteed an income, right?
Chitra Aiyar 7:11
Over time, neoliberal policies, blah, blah, soapbox, it has devolved to the individual. But I think it’s really important to be like, this didn’t used to be an individual person’s job. Right? It was an employer’s job. And part of what’s happened is the entire responsibility for ensuring retirement security has fallen to individuals, and instead of people being outraged about sort of that shift of responsibility, we ended up internalizing, right, the blame and being like, “oh, it’s your fault for being financially illiterate.” But the idea that a regular person who is not in finance, should be savvy enough to know all of these things is not what has been the historical expectation, nor is it in the expectation in most other countries.
Chitra Aiyar 7:58
So this is a particularly American phenomenon. And then this phenomenon, where we’re like, why don’t you know, and, and many people are like, Oh, Eisah, I should do research on this. But maybe now you have to, but this isn’t the norm. So one thing I think is to recognize that when we say illiteracy, it helps to make it an individual problem. But actually, it’s society has sort of divested its responsibility.
Chitra Aiyar 8:24
I think the second thing is, when we leave it up to individuals, whether or not they put in money, right, the thing with retirement, again, because savings gets compounded over time it doesn’t get taxed, is $1 that you invest when you’re 25, right? can end up being $5 when you retire, if you start when you’re 35, it’s worth 350, or something. I mean, and I don’t like to fear monger here, except it’s really true.
Chitra Aiyar 8:50
But what happens is, then we’re like 20, somethings, why aren’t you investing money? Come on, come on, come on. And part of it is the idea that we should wait for people to figure this out, and then be like, oh, sorry, you suck. You didn’t do this in your 20s, recognizing that people in their 20s are the ones who are most likely to be making student loan payments have the lowest salary?
Chitra Aiyar 9:12
An easy fix, is to make the match a guaranteed match, right? And so this idea that well if you put in 4%, we’ll put in 4%, then you get 8%. Like, it’s sort of this idea of an incentive, but it presumes that people are going to put in 4%, you have the option when you design a retirement program to give everybody 4% across the board. Right? You can just guarantee it. And then yes, people can put in more, right, but they’re not losing out while they are waiting to learn. Right. So it’s this sort of, there are options. The default assumes that it is always better to incentivize people, but one of the really, I think the I think the most interesting findings from the report was seeing what type of organizations do a guaranteed contributions and what makes it elective or sort of a match, and we found that POC led organizations meaning more than 50% of the leadership team and board or PRC had guaranteed contributions, whereas white LED organizations were more likely to have this incentive structure.
Chitra Aiyar 10:16
And I think it’s a really good example, concrete example about why lived experience in diversity matters. I assume that people who did not have a lot of expenses when they started off, meaning, they didn’t have student loan debt, they weren’t supporting other family members, which is true for white people and not true for people of color. They’re like, if I had money to put into retirement, we’ll tell people to do it. But what we know from the great work of building movement project is that people of color in the nonprofit sector, more likely to have student loans more likely to supporting more than themselves with their families, they don’t necessarily have the money to put in.
Chitra Aiyar 10:54
And so when you make retirement like you should put in, right, they fall behind to begin with, they may or may not tell you, I don’t have the money for this reason. But they are made to feel to blame in an easy shift, but is not happening in the majority of nonprofit organizations or just organizations generally, is doing a guaranteed contribution, right? Because when if optional, it you- somebody can lose that money. And the question is, why not just guarantee it? And one of the most, I think, honest things I heard, and it was off the record, so I can’t cite who it’s from is somebody said, Well, if we made it guaranteed, we would have to spend all of that money in the budget.
Chitra Aiyar 11:31
If it’s optional, right, we put the line item in the budget every year. And then when people don’t access it, we have more money afterwards. And if you’ve got a ton of restricted funding, it’s nice to have general operating money. So there is a way in which the optional thing, there is a perverse incentive to not make it guaranteed. But I think ultimately, that is a huge like that is the single largest thing that is impacting people, because it allows you to blame people for not having retirement funds, as opposed to just giving it to them, which they should.
Rhea Wong 12:03
That is a really good reframe. And I appreciate that. But let me ask you this, because I think from a retention tool perspective, like a guaranteed 4% would be great. But I’m also like, I’m just thinking about my young staff members, and how they didn’t understand like the full package of compensation, all this all of their salary. And like we had a really generous, we covered health insurance 100% If we’d had this, a 5% match, but at the end of the day, because exactly to your point about the student loans and being young in New York City, they were like, all I really see as my salary. So even if I could explain all this stuff to them. It wasn’t like they were like, it didn’t even go to the doctor. I was like we have this soul. But I’m sure
Chitra Aiyar 12:52
I mean, yes. And I do think there’s been a shift over the last couple of years of demands around for example, like better mental health services within people’s health care or health care that covers sort of broader issues, I think, right? Like I think this is sort of a combination of better policies at the organizational level, but broader political education, like retirement needs to be seen as a racial wealth gap issue, right. And so people need to make the demand for it.
Chitra Aiyar 13:21
When it’s like, Come on, don’t you want to save for retirement? I think it feels like it’s beyond me. But when it’s like this has been kept from you. The largest contributor right for you to the racial wealth gap is going to be retirement. This is what has happened. Right? This is why it’s deeply racialized. I mean, I feel like millennials and Generation Z have had incredible success in pushing the nonprofit sector to be better. I think this issue has not been politicized. I feel super excited to do political education on it to be like, “Why is this a racial justice issue?” I think once we can have start having that conversation, people will start demanding it, which makes it easier because I think we did talk to a lot of administrators who are like, we’re spending so much money on this, and nobody appreciates us.
Chitra Aiyar 14:11
And I think it’s hard to make that ask when they’re like, but our, our staff would prefer this in the form of salary. And so if we’re trying to respect our staffs agency, we should do what they’re saying. And so I think that’s right. And I think what’s really important here is a broader sort of political education campaign that’s not just for the nonprofit sector, but in general, around retirement and the racial wealth gap and understanding, again, the huge difference that has happened, like in our lifetimes of what our parents and grandparents had and what is no longer available, and why this breaks out along along racial lines, which it which it does, so I think, yeah, it does. So I agree with you that on its own, just improving retirement offerings without a parallel political education project is going to fail and is hard to incentivize organizations to do with limited resources, I think you need both.
Rhea Wong 15:11
This is why you’re on the show, I want everybody listening to this, to understand generational wealth, and why retirement matters. So let’s flip to the other side of running a nonprofit. So what have been some of the challenges, especially for small nonprofits that don’t have a finance committee or a full time CFO to access really good retirement plans for their staff members.
Chitra Aiyar 15:34
So there’s a few things here, one of the things is that it costs more for smaller organizations. And so this is something that is sort of in the financial sector. So the firms that offer retirement plans, you have to pay more per person if you have less people, and if they have less savings. So essentially, the plans are sort of scale, and there hasn’t been significant government regulation, to sort of even that out, I think that’s an important place for people to organize on.
Chitra Aiyar 16:03
So if you are a small organization, you are screwed. If you are a small business, right, screwed, meaning your per head cost is often higher. What’s interesting is that Congress set up a couple of simple plans when in fact is called Simple. One is called the SCP, these sorts of plans that have very low or no fees. If you are a business who adopts one of these plans, you can get a tax credit of up to $15,000.
Chitra Aiyar 16:32
So essentially, you are incentivized to offer these plans, nonprofit employers don’t receive any incentives, which is a problem. And it’s sort of a historical continuation of not being recognized as employers, when Social Security started way back in the 30s, that folks were excluded were farm workers, domestic workers, and workers at nonprofit organizations who weren’t considered as real workers.
Chitra Aiyar 16:57
That continues today, the employers don’t get benefits, in addition, so what was interesting is when we interviewed we found, unsurprisingly, the organizations who don’t offer retirement or those whose budgets are less than a million less than 10 employees, and many of them were like, We would like to but it’s so hard. Then I we asked a question of, are you familiar with these simple SEP plans, right, and like 80% of them were not.
Chitra Aiyar 17:22
And so it’s that they are so administratively overwhelmed, that they don’t even know there’s an option for them. But it’s like sort of this administrative burden of like, even finding out your options feels like it’s so much because it is often the executive director in this role. And it seems like it comes down to whether the executive director happens to be good at things like retirement, which is a crazy, like, no one’s interviewing for that. And that competency doesn’t necessarily make you a good executive director. But when you don’t have a full time administrative staff person, it’s gonna fall on the executive directors to the organizations that are under a million that do offer retirement, it is more likely they have a part time or a full time admin person, the people who don’t, don’t.
Chitra Aiyar 18:10
And so the answer cannot be in my mind to be like, retirement is really important, guys. So smaller organizations who are overwhelmed with no admin staff, please do another thing, right like that. It cannot be it has to be that if we think smaller organizations are important that these costs, right, both the cost of offering a plan, but like the knowledge, information cost has to be borne by the sector, water sector, meaning funders and nonprofit associations have to do the education and find the plans for people because being like, it’s really important. Please do more work isn’t fair because it asks those with more resources to do more.
Chitra Aiyar 18:52
And I don’t know about you, but I feel like often, when you go to these sort of information sessions around retirement, it almost always is like an old white dude with a bad suit from the private sector, who’s like doing a free session. And then you can hire him. But it is never somebody who is actually from the retirement like from the nonprofit sector who can relate to people. It’s sort of we’re like, it’s kind of boring, and out of reach. And so we’ll just bring on these people as opposed to people who can actually talk and I think this is again on if funders are going to support the launch of tiny organizations that are super small, doing interesting work, they can’t be like, and we’re going to screw you for retirement and all of this talk and I think some funding around DEI stuff.
Chitra Aiyar 19:38
I’m like, listen, all of this cultural competency means nothing if people aren’t building wealth, right? So if you actually want to put your money where your mouth is, we should be subsidizing retirement plans for smaller organizations at a sector wide level as opposed to asking every organization to figure it out on their own. It’s not fair and it makes all the other stuff kind of garbage, because it doesn’t add up in the same way.
Rhea Wong 20:02
Chitra you are might have seen my language and so yeah. As you’re talking I literally am getting flashbacks of as an ED. You’ve been asked to choose retirement plan for my, my organization and I was like what do I know about any of this? It was like Eeny, Meeny Miny Moe was like, Yeah, sure. That looks good. Right. Like, I mean, I probably shouldn’t admit this, but it wasn’t informed decision because I wasn’t an investment professional. Like, they gave me paper. I signed it. And, you know, I think you’re absolutely right, which is the administration of it was beyond what I could do or understand and yet, like, it was really hard.
Chitra Aiyar 20:47
Yeah, no, I actually, I, I who pride myself on my ability to read small print, think about when I implemented a retirement program, and at some point, I was just like, okay, like, I don’t know. So we’re just doing this. And, like, I feel like I’m in the best possible position, I am not scared of small print, I in fact, enjoy it. And I still was just like, I have no idea. I’m hoping for the best, which is insane. And there’s so many organizations like this. And yet there has not been, again, a sector wide support, and if we recognize that the people who need employer supported retirement the most are those who do not come from generational wealth.
Chitra Aiyar 21:28
If you come from generational wealth, it is likely that you set up a private retirement plan, you have access to advisors, which could just be your parents or their friends. And so you have a pathway to retirement, the people who don’t come from wealth, don’t have a pathway, it it becomes even more for the employer to provide that. So again, if we, if there is a encouragement in the sector to hire people who don’t come from wealth, then you essentially are screwing them unless you provide retirement because without a retirement plan, unless you’re providing such high income that they can save in the absence of that, if you want them to stay for their career in the sector, if they don’t have retirement, they are going to be penniless afterwards.
Chitra Aiyar 22:13
And so again, all of this sort of recruitment and retention around diversity on race and class things. Retirement I think is out of everything, the most important because it is what allows you to survive afterwards. And people who don’t come from money, in addition to having additional, like student loan expenses, supporting family members, the other big thing is there’s these things called key lifecycle moments like having a baby buying your first home. And what happens is for wealthy people, they are more likely to get what’s called inter vivos transfer, wealth transfer, meaning you don’t get money at inheritance, you get money, when you’re buying a house or going to college, having a baby, that’s when your parents or your uncle or your grandparents transfer money.
Chitra Aiyar 22:58
If you don’t come from money, you’re more likely to withdraw from retirement, right? Because that’s the only source you have. And so there are all of these ways, that if you come from money retirement, you’re gonna get retirement, regardless of what your employer does, if you don’t come from money. It’s exacerbated at every step along the way. And so it’s really, really important. And I can’t find stats on who works at really small organizations, right? Like, I don’t know, if I don’t, I don’t think necessarily that that is racialized and done by class. I do think though, you shouldn’t have to be like, I’m going to give up on my long term future and therefore not work at a small organization.
Chitra Aiyar 23:40
The other thing is, it’s so much cheaper, again, recognizing that $1 That gets invested when you’re in your 20s is worth $5, when you retire versus in your 30s if you’re a funder, right, it is so much cheaper to be subsidizing everybody when they are young, because they’re gonna have a lot more money, right? And so this idea that, “Oh, in my 20s, I’ll just do things and not get paid well, I’ll deal with it later.” That is a luxury that should only be afforded to people who come from wealth. But if you don’t come from wealth, we need to subsidize it for them.
Rhea Wong 24:10
You know, it strikes me too, that the vast majority of nonprofits in this country are actually under a million as well. So we’re you’re talking about a huge number of people. And I think this sector has grown What, like 10% yearly or something like that? I mean, it’s tremendous growth.
Chitra Aiyar 24:25
Yeah, it’s interesting. The numbers thing is really interesting. So, the vast majority of organizations are tiny. The vast majority of people who work in the nonprofit sector work at large organizations, right, like universities and hospitals. So it’s a weird way to think about like majority is majority of people because the nonprofit sector encapsulates write universities, hospitals, that kind of thing. People are there. But the vast majority of nonprofit organizations direct or small or tiny are under 10 employees and under a million and I don’t have, I’ve been thinking a lot about whether there’s an argument about like small nonprofits play a vital role, because they’re more likely to be radical and agile. I don’t know that that is true. I do know that that is the fastest growth rate like, and if they are going to be funded, funding them without providing the support or retirement, like making that an option of when the executive director can figure it out, it’s not fair to that to the executive director or to that staff. Right, whether or not they’re making the demand for it. If we think people should have sustainable careers in the sector, we should be we should be subsidizing it.
Rhea Wong 25:41
That’s such an interesting point. I agree with you. And I also think there’s something about the immediacy of the funding needs right now. I think as humans, we’re also like, pretty bad at planning for the future. We’re like, I want the cookie now. I don’t want to wait for the cookie. So, how do we square that? Because I think it’d be wonderful if foundations and funders said that will subsidize retirement for your staff. And I could see an ED be like, but I’d actually rather have the money right now. Right?
Chitra Aiyar 26:11
I think it’d be I think we have to figure out how it’s not either or right? because I think making letting people choose. So again, if we look, historically, people didn’t have a choice. People also couldn’t withdraw from that money that was for retirement. And so part of it is just has to be when organizations are brand new, first five years, this is what you get, again, as little as like 100, or $200, a month goes a long way, especially if people are in their 20s. Right, it is cheaper, but it has to be separated out because asking people to make that call when they don’t have enough money, is it doesn’t make any sense, right?
Chitra Aiyar 26:48
It has to be provided. But I think in the interest, if there is like, I think part of what this is, is a concrete backing up, if there is a commitment to diversity, equity, blah, blah, blah, in the sector, I’m like, well, here is a concrete way that you actually invest in people, right? All of the trainings and cultural competency. And this I mean, no shade, there was a little bit but you know, I’m sure it leads to something. But I’m saying if you actually care about the racial wealth gap, and you are a funder, you should be doing this across the board and not making it part of operating grants. It’s just this is what we’re doing. Because we care about these folks, long term things, which I think is really different than having workshops and groups and things like that. This is actually the racial wealth gap in in real time.
Rhea Wong 27:34
Let’s search tax a little bit because I want to talk about actually the investments. So one concern I’ve certainly heard with EDs is like if we put our money in a retirement fund, how do we know that it’s socially responsible? Because what if we’re spending all this time working on inequity on the ground floor, but then our money is going towards things that are undermining our environment? And all of the work that we’re doing? How do we square that? Like, are there socially responsible investment vehicles? And are those investment vehicles going to provide less return than the other types of investments?
Chitra Aiyar 28:10
What we find is, if you think about like, what reduces your returns, right? One of the things is, when do you start putting money in, right? If money’s in there for a lower amount of time, you get less returns, the amount you put in matters, and then there’s the rate of return. The other thing that matters a lot is the fees that you pay. So if you think about like you’re supposed to be getting a 7% return, but you’re paying like 1.5% in fees, you’re ending up getting a 5.5% return. And I say this in part so I know you asked the question about what can we do to improve retirement plans, one of the things that’s really important is for people to understand the long term impact of fees, it often doesn’t show, they often will say your fees, or this quarter, were $72. But those also get compounded over time. They never do the chart of like, how much are you losing?
Chitra Aiyar 29:00
Employers often share the fees, that’s what gets pitched to them to be like, Oh, your employees will pay, they won’t feel it. It comes out of the plan, but it actually impacts their long term savings. I say this, because right now, right, many people are losing a huge amount, and they have no idea. They just think that that’s the rate of return, but it’s being taken by fees. So number one is many nonprofit workers are losing a huge amount. And I don’t know if it’s good, because it would be terrible, I guess, to be 65 and see a chart of how much you lost. Most people have no idea that that’s what’s happened because they’re not required to provide you disclosure on that. They just do the disclosure as a one time thing. Meaning if you are going to pay high fees, there’s really not a big difference between getting the same getting a lower return on a socially responsible investment. I do think there are some socially responsible investments where that have high returns. It depends on what you’re defining, as socially responsible, right?
Chitra Aiyar 29:58
So if you’re like I don’t want to do fossil fuels, but then you’re investing in things like Amazon, right? You can make a great return. If you’re like, I don’t want to do anything challenging, right, like, right, it becomes harder. One of the requirements, which I think is a good thing is in general, you have to provide your employees with some choice. And one of the things that we heard from a lot of administrators who had spent a ton of time trying to find values aligned investments is a fear that they were putting this on their employees who already weren’t earning much to be like, if you want to be ideologically pure, you won’t invest in this. But that feels like that has to be an individual decision.
Chitra Aiyar 30:39
So part of I think what’s really important is to have plans that have choices, and then talking people through what that means but not pressuring people. Because I think there’s one aspect which is like, I don’t want to put my money in this. It’s bad stuff. And that’s a shame because you don’t get retirement. But the other thing is, I feel like I can’t choose the most lucrative option, because then I’m being shamed, like my employer is like putting pressure on me. So I think there are ways that employers can structure this, I’m just doing a shout out to justfutures. The link is there, justfutures.co, you can sign on to the mailing list, both for copy of this report, but they’re also launching, they’re launching a some retirement options that respond to these needs that will have some choice.
Chitra Aiyar 31:23
But I think what’s really important that we need to do and make demands from providers is to provide more transparency, right? So that people are like, what things matter to me. And having people who can do the education who don’t speak in jargon, right? The lowest rankings across the board was like the quality of training where people were like, I just feel like these are people who don’t like their jobs when you do the training. And I was like, this is correct. Like, they’re boring. And so part of it is like, how do we make this engaging? The other thing that justfutures has been looking into, and there’s another report that has been released, or it’s about to be released has been like, are there ways to invest in things like community loan funds? Like what are really ratable things that can be invested in might be a lower return, but might allow employees to feel more engaged in retirement, ultimately?
Chitra Aiyar 32:17
Are their options that meet every social justice guideline and have a really high rate of return? I don’t think so. But are there things that have lower and more transparent fees, and meet some social justice guidelines? Yeah, 100%. And I think what’s really important is to say that the financial industry who provides retirement is really poorly regulated, and get away with crazy fees. So your losses, again, are much more on the fee. And, and I think part of the recommendations here is not just about providing retirement, but making demands, like recognizing that the nonprofit sector is a huge sector and saying, Hey, this financial services sector, also a huge sector, both of us important to the economy, but making demands that there be more transparency around fees, instead of this just being unlimited profits, which it has been for over the financial services sector who primarily exists to serve larger, wealthier people put more money in retirement, they get more tax breaks, the financial services, companies make more money.
Chitra Aiyar 33:22
And so there hasn’t been a demand that they serve people who have less savings. So I think that is a sector wide demand that has to get made, instead of just being like, it isn’t for us to be like no, this actually should be for us. And this should be regulated, so that it can serve smaller organizations, as opposed to just existing to reinforce wealth where it already exists.
Rhea Wong 33:45
I wonder and maybe this is like getting a little too technical. But things like robo advisors, which have lower fees, like is that changing the game at all? Is it the quote unquote, disruptive? You know, I hate that word. But I’m in. I’m in the bay area right now. So I’m just gonna say everything is disruptive.
Chitra Aiyar 34:00
So we actually asked people if they were familiar with Robo advising and unsurprisingly, right, many people in the nonprofit sector are late adopters, right? Robo advising often significantly reduces the costs associated with a retirement plan. Similar to what I was saying before, where there are these administratively easier plans with lower fees, the SCP and the simple plan, but people don’t even know about them because they’re overwhelmed. Similarly, something like Robo advising, right has a much higher uptake amongst organizations that have a full time CFO have an investment committee.
Chitra Aiyar 34:39
So it’s sort of like the benefits are often for the larger organizations who have capacity that smaller organizations with less capacity, particularly the lack of a full time admin, or a finance person who’s savvy, it ends up that they aren’t familiar with these things that reduce the cost which I think is a true always for most things and this is why I would say the recommendations here aren’t just for individual workers to get literate or individual organizations to provide more the question is, who has more resources and should be doing more, which is funders, intermediaries, like nonprofit associations being like, Can you do a actually engaging session on how you can reduce your costs? Can you do education for all workers in about why is retirement a racial wealth gap issue, instead of asking individual organizations to take that on? Right?
Chitra Aiyar 35:32
And can we normalize, that there is education available to everybody in the sector, from associations from funders, as opposed to being like, the unit of responsibility is the employer, right? Because that will always, every time we make the unit smaller, whether it be an organization or an individual, we ended up with those with more resources do better. And so we have to offset this. And luckily, in the nonprofit sector, we supposedly have funders, right. And intermediaries, who should be able to offset the higher costs, both in terms of financial costs, but also in terms of knowledge and information gathering. And they should be doing that.
Rhea Wong 36:09
Why don’t we just hire you to go around the world? And-well, cuz I made as I’m going, because I’m gonna be back in school. But yeah, I know. But I know, I made sure what, yeah, I would love to just give you a megaphone and a soapbox, and we’ll send you on the road.
Chitra Aiyar 36:25
I mean, I do think one of the things have been really heartening is me and I’m glad I’m not an executive director managing this, it seems that like the high the high rates of unionization and labor consciousness in the nonprofit sector, so we have seen, I feel like a huge shift just within the last couple of years. I did, I think this didn’t make it into the report that was really granular. But I did an analysis of media articles about nonprofit unionization to see how often retirement got mentioned, which was two out of I think, 26 things, it was mostly about, like shared decision making participatory, like DEI work, but retirement was really low.
Chitra Aiyar 37:03
And so rather than feeling like sad about that, I’m like, listen, labor consciousness is really high. We have seen responses to demand. If we politicizes that I’m like, Generation Z will save us all right, like they will push it like, I kind of feel like I would love a megaphone to push this. But I think I would only have to do a little bit and then it would take off, right? With the talents of the younger generations who have been pushing for greater things, I feel very confident that once it gets out there, there’s not going to be a need to push it further because they’ve done really well in terms of making demands, we just have to introduce retirement as again, as a racial inequality class issue as opposed to this thing that is for all people in Florida.
Rhea Wong 37:46
Okay, Gen Z, listen up. Take notes, make this an issue, put this on the agenda. So Chitra, before we open up for questions, bottom line this for me, so if I am an ED, what can I do concretely, to push this agenda?
Chitra Aiyar 38:02
You, I would say you should do three things. if you’re not offering retirement currently, I would say look into the SCP or a simple plan, one. Two, if you are currently offering a retirement plan, I would make sure that you are understanding how fees work, there’s a section in the report on this, which breaks out. Three, if you’re offering a retirement plan with the employer contribution, I would make that contribution guaranteed, as opposed to optional. So again, if you don’t have a plan, get a plan. If you don’t offer a contribution, look at your fees. If you offer a contribution, make sure that it’s guaranteed all of these things, I put a link in the chat if you go to justfutures.co and say you’re going to sign up, you’ll get alerted when the report comes out. And there are concrete like, step by step. But I think part of it is getting retirement if you don’t currently have it, and then improving retirement across the board. And then I guess, I would also say and then make demands of your funders and nonprofit associations to do more.
Chitra Aiyar 39:08
Again, I think this is a sector wide issue and trying, I think EDs are really talented and are like, Okay, I’ll take this on. And I actually think there’s going to be EDs that’s really hard for and it doesn’t serve us to always take this on ourselves or ask individuals to get really good at retirement and educate their peers. Like let’s make the demand of people who have resources and be like, what we want is actually a really engaging, right recurring session about why is retirement a political issue that is offered to all workers in the sector. And if you have a good one, you know what I mean? Like promoting it.
Rhea Wong 39:44
Let’s go Yeah, well, I want to like gofunders, we talked about EDs, and I want to talk about individual contributors but like what can funders do if they-
Chitra Aiyar 39:53
Funders should be subsidizing the cost. I think what’s really, really important and my big fear of this report is what I do not want is for funders to say,”Hey, do you provide retirement? We understand this as a political issue. Do you provide it?” and then penalize organizations who don’t, right? Because it’s unfair, because it is incredibly burdensome. So it should not be used as like a sword versus a shield. Funders should be subsidizing the cost of retirement, at a minimum finding out about retirement plans. So information costs, ideally, subsidizing the actual costs, right, providing some money for employers to make a contribution, recognizing that that is a funder contribution to the sector as a whole. And so funders should be information costs, right? helping their grantees know about plans, and then ideally subsidizing those costs.
Rhea Wong 40:44
What can board members do? We haven’t talked about that.
Chitra Aiyar 40:46
Board members, especially if they should be pushing for there to be an employer contribution, a few people organization said that their board members are actually the ones who give them money. Again, we want to think about this as separate from existing operating expenses, right? Like it needs to be money on top of it. They also could do the research, especially if you’ve got a finance one to say, ha, for fees, right? Because often what happens as employers take the plan that is least costly for them, and you don’t see the fees that are given to the employee, so nobody complains about it.
Chitra Aiyar 41:22
But I think a really good research project is a board member understanding what are the implications for employees and pushing that the organization holds the fees, but also to your point, introducing things like Robo advising, because most likely there are ways of reducing the fees. We found that when we asked, What’s the biggest factor in choosing a plan, fees were a big thing. But when we asked, have you looked at your fees in the last year, most people said no. So what’s happening is that people care about costs. costs aren’t necessarily going up. They’re dropping, but because I think we respond more to see be like, Oh, no, what happened, it went up. That’s the urgency. I think there’s a lack of taking advantage of the drop in costs. And that feels like a really good board research project. Because I think, again, I think staff are often overwhelmed. And but this is a really great thing to find out, particularly if they’re in the private sector, and they have access to these things.
Rhea Wong 42:19
And what can individual employees do?
Chitra Aiyar 42:21
Individual employees can do like sort of a racial equity audit, if their organization offers a retirement plan, so they can make the demand that everybody get the same amount, right, that that’s an easy demand to make that people are automatically enrolled in retirement. Right. All of the research shows that if you let it be up to people, right, people who come from generational wealth more likely to enroll. So there are some key things that I would call like a racial equity audit of the retirement plan, the largest thing being like, make sure that the contribution is guaranteed provide education, so they should make the demand. And if there isn’t retirement, they should be like, we should find out about these SEP and simple plans.
Chitra Aiyar 43:05
I think, I think we have seen again, and again in the last couple of years that nonprofit employers are incredibly responsive to workers. So I think workers making demands of their employers is really important and being like, you should be providing this to us, as opposed to let’s just have a study group and figure out how we can be more financially literate. Like I think that’s great. But I think, again, that that is puts the sort of burden of that labor on employees. And I think that demand should be that their employer provides it without making it an offset for that, then the employer is gonna make Where are we going to get the money? And then I think it goes up the chain, right, and then makes demands of funders, but I think we need that demand to happen.
Chitra Aiyar 43:45
And I think it’s really great. Like there’s some charts that are like, startling, again, it’s a little bit fear mongering, but it’s real about the difference of when you invest in people in their 20s versus in their 40s. So it is there is a business case, if one wants to do say it like this to be like, Listen, if you give money to these 20 somethings, you can give them less because it’s going to be worth more by the time they’re 65. So giving it that making that argument now, there is a business case for it if people want to make that.
Rhea Wong 44:12
Was it Einstein who said that compounding is the most powerful force in the universe.
Chitra Aiyar 44:16
So apparently I have done didn’t really say that, but I like the idea.
Rhea Wong 44:19
I know I like the idea too. So, Sonia, I’m going to invite you to unmute yourself and ask your question unless you feel like we’ve already answered it.
Sonia 44:27
Hi, Chitra. It’s so great. It’s it’s really inspiring. And I appreciate everything you’ve said. So my question was what kind of asks can staff in making up their organizations fiduciary is assuming that presumably the organization has at least one to help them both figure out is this a good plan and then also to push on ways to improve? And you mentioned one the auto enrollment, and I was wondering if there’s anything else that you want to add to that for you have to be thinking about?
Chitra Aiyar 44:56
And also I mean, just a huge shout out to Sonia who was a union rep for her organization, and is part of the reason that she got such good benefits that legal services have great benefits. So, automatic enrollment is one, there’s also something known as automatic escalation. And so the idea here is, as people’s salaries increase, you’re increasing the amount that is going to retirement. And that happens as people’s salaries go up, as opposed to giving someone a raise, and then being like, Oh, do you want to? right. It just automatically, then people can always opt out. But what all the research shows is that people get really busy and don’t do that.
Chitra Aiyar 45:34
Having emergency savings, which could be a separate fund that people put money in, the organization puts money in an Association puts money in, which means the people who don’t come from generational wealth are more likely to have a need for emergency savings, which is a medical thing there. Something happens to their parents, right? This is separate from like the house, or baby it’s just like, emergency, but like, do people have a way to access funds that doesn’t require them to withdraw from retirement, it could just be a parallel savings account, which is kept for that.
Chitra Aiyar 46:05
Again, it could be at the organizational level, it could be something, it could be advanced on payroll, but recognizing rate, retirement is great. And often people need something and this is what happens is people often start withdrawing from retirement and aren’t able to put it back because their expenses keep going up. Fees are really important. There are fees that have to be covered by the individuals, it’s important to see how much these fees are and break it out for people to see if it’s a good plan. There also are what are called administrative fees that can be covered in full by the employer. The way that these get pitched often is like this is how much the employer will pay. And then the plan will pay through a rest as if there’s some like pot of money, but that’s actually from individual employees.
Chitra Aiyar 46:50
And so part of it is looking at it and being like no like, to the extent that the employer can cover these they should because again, those costs are compounded. So when someone’s paying $10. It’s the loss of that $10. But it’s compounded over time. So they’re losing ultimately, like $100, whereas the employers only spending the $10. So it makes sense for the fees to be held. And then finally, I think it is to get a sense of what sort of social justice issues are most important to employees. I think this is hard, because I think there’s such a range. But if we say it’s sort of the leading ones, what we found is interesting, the leading ones in the country around fossil fuels divestment, the leading ones we found were about present industrial complex divestment, right, just so different groups, but to sort of say what things are most important? And do we have options for this, but also not to make that a requirement, right, like, meaning we have the option, but breaking that down.
Chitra Aiyar 47:46
And I think finding that information is a lot of research, because it is often a hidden, but I think getting a sense of like, hey, these things are important. And so here are some options, like on the top three things. Again, I think this could be the fiduciary committee, I also think this is a great role for like nonprofit associations or other places to do because it’s going to be true across the board. So the idea that, you know, one set, the fiduciary should do it for this. It’s sort of a weird way of sharing information, right, like, meaning it should be done on a broader level and then sent out so I think there’s sort of groups should do it and then share what they have found, because it’s going to be true across the board.
Chitra Aiyar 48:28
If you are interested in these topics, we found these funds to be good, recognizing, right? I mean, we’re all going to live the ideological contradictions, but I think it is good to get a sense to be like, Hey, let’s try and be somewhat responsive, and give options while not limiting people to those. But again, I think that research, it’s really time consuming and cumbersome. But I think it is great for fiduciaries to take that up, but also to get a sense of actually what employees care about, because it might be the organization’s issues, right what the causes the organization stands for. But there might be other things that individual like all of your employees care about, even though that that’s not the thing that organization stands for. And I think that’s an important thing to find out because a lot of the folks who are like prison divestment don’t work at places that do that. But it’s important to them as individuals and part of their social justice thing. And so I think there might often be gaps in perception of what is important to our employees.
Chitra Aiyar 49:27
And so I think it’s good to ask, right, and try to be responsive, recognizing, again, that it is it is complicated. And then I would say to be generous within the sector, because if if you’re right, like if some organizations fiduciaries are not doing anything, right or doing the basics are like, what and so I think if one has an engaged thing, I think then sharing it like I think your peers will be incredibly grateful. You know, there’s good sort of, I think there’s good karma and PR for you but I think it’s really important that that if organizations who do this research, it benefits you to share it widely because I think there are a lot of fiduciaries who aren’t totally clear on their responsibilities, and are nervous of doing anything, any making any changes and hearing that other organizations are doing X will lead them to do it in an in maybe in a more efficient way than if the staff makes that demand. So
Rhea Wong 50:18
Chitra, thank you so much. This has been amazing. You’ve dropped a whole bunch of value bombs here. Where do you know when this report will…?
Chitra Aiyar 50:27
I think in the next few weeks, it’s getting edited and formatted and charts and everything now. So we will make the announcement when it comes out. But when people sign up to justfutures.co, they’ll get alerted enter, you will promote it. And again, there we talk about these these specific kinds of gaps around capacity and transparency and values. But also, the recommendations which we’ve organized as sort of, what does it mean to sort of organize and subsidize right?
Chitra Aiyar 50:59
Not just like, I think the thing that I think is the most important is none of this should be about the increasing the responsibility on individuals who don’t come from wealth or organizations that are tiny. And so I’m hoping not just that we spark a conversation around retirement, but we spark a conversation around responsibility, like pushing responsibility on those who are higher up, we’ll see.
Rhea Wong 51:23
That’s awesome. And is it okay, if folks connect with you on LinkedIn?
Chitra Aiyar 51:26
People should totally connect with me on on LinkedIn, or they can just, I can also just put my email they can just
Rhea Wong 51:31
Alright, we’ll make sure to put your your LinkedIn in the show notes along with the link to just futures for folks who want to do further. Further research. We got to Yeah, I agree with you. We got to figure out a way to get a megaphone and a soapbox on this issue. Because you’re right.
Chitra Aiyar 51:46
Maybe this podcast is maybe, Rhea you are the platform.
Rhea Wong 51:49
I mean, I may be one of many.
Chitra Aiyar 51:51
That was the extent of the maybe that was the extent of the and that’s all I had. This is my hope. I’m like, I had to have one megaphone. Who would it be? And I’m like, so.
Rhea Wong 52:02
You’re too sweet. Okay, well, everyone go look at your retirement benefits, demand retirement benefits, look at your fees can deter so yeah,
Chitra Aiyar 52:12
the other thing I’ll say is if you are part of a nonprofit association, like or like a group like YNPN, or like a group of finance people, and you want me to do a version of this, but like with fancier slides or something from the report, I’m happy like, I’m very much happy to talk about this and do in the weeds stuff. So feel free to reach out to me because I feel like if you’re amped and you want more people to get pumped up, I’m super excited to kind of do like a traveling tour, especially with the report coming out of getting people excited.
Rhea Wong 52:44
Amazing. All right, friends, thank you so much. Chitra?
Chitra Aiyar 52:47
Thanks everyone.
Rhea Wong 52:48
Take care. Have a good week, everyone.
If you want the full episode transcript, check here: https://www.rheawong.com/podcast/
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