For plan sponsors wondering what they can do to help diverse workers increase their retirement savings, a new document outlines plan features and strategies that can help bolster the savings of underserved workers.
In Improving the retirement readiness of underrepresented groups, Alight explains that employers have benefited from having a diverse population of employees because these people have brought unique perspectives to the workplace. These employees also brought a wide range of retirement savings behaviors that did not necessarily lead to positive results, however.
From a race and ethnicity perspective, the paper cites long-term data from the Bureau of Labor Statistics showing that the number of non-white American workers has doubled since 1979 and currently accounts for a quarter of the workforce. work, the Hispanic share rising from 5% to 18%. Moreover, in recent decades, women have gone from about a quarter of the civilian workforce to nearly half. Additionally, about 10 million US-based workers have a disability and more than 5% of American adults identify as LGBTQ+, including one in six members of Gen Z, Alight notes.
Meanwhile, companies that have focused on diversity, equity and inclusion (DE&I) have realized significant benefits to their bottom line. Citing data from McKinsey & Company, the paper notes that employers in the top quartile of diversity among their leadership teams achieved 36% higher profitability than those in the bottom quartile.
Thus, employers seem to be focusing their attention on reviewing their diversity and inclusion efforts. According to Alight’s research, 8 in 10 companies say they are “very likely or moderately likely” to expand inclusion and diversity efforts into their retirement and financial wellness plans in 2022. This includes reviewing their financial benefits to determine if employees have a fair opportunity. to improve their financial well-being.
Against this backdrop, Alight offers six steps that can help plan sponsors increase savings for historically underrepresented groups.
Integrate principles of financial well-being into the design of pension plans. Since there are still large disparities in the amount of emergency savings between racial and ethnic groups, employers should consider helping workers build savings for needs other than retirement. It could be a dedicated off-plan program to help workers build emergency savings, or it could involve adding features like after-tax contributions that allow workers to access their savings without as many penalties and restrictions as pre-tax accounts, paper notes. “Even among resolute retirement savers, emergencies can topple well-conceived retirement planning unless there are enough savings in place,” observes Alight.
Consider DE&I in the investment selection process. While few companies have considered the culture and diversity of asset managers in their 401(k) plans, nearly 40% of employers said they are very likely to do so in 2022, the firm notes. “Given that diversity, equity and inclusion form the backbone of the ‘S’ in ESG (environmental, social and governance) funds, there could be increased interest in funds that invest in companies with DE&I initiatives,” the document reads.
Have a diversified communication strategy on savings. Alight suggests that perks like a 401(k) plan or financial wellness tools aren’t worth it unless workers use them, so having a solid communications strategy is essential. Among the firm’s suggestions are:
- tailor communication strategies to the individual;
- set standards for inclusive language;
- be authentic, for example by using photos of real workers or customers, instead of stock photos; and
- ensure all content is accessible, while moving to mobile.
Ensure equity of benefits in the pension plan. To address differences in participation rates, employers can take steps to reduce the differences, such as offering workers a contribution that is not tied to a quid pro quo. Alight notes that around a quarter of major plans currently have a non-optional feature like this. Employers can also modify the matching formula to help keep costs consistent with the current program, the document suggests.
Align pension plan design with DE&I research. While auto-enrollment is effective at getting workers into the scheme, Alight notes that its data shows that those who are subject to auto-enrollment save less than those who are not. To help combat this, employers amended plan provisions to increase the initial default rate, add contribution indexation and increase the indexation cap, the document notes.
Facilitate financial stability when changing jobs. Finally, implementing automatic portability can help reduce the number of automatic withdrawals that occur when people change employers, suggests Alight. The impact of cash withdrawals is deeper for marginalized groups. While less than a third of all DC attendees cash out small balances, 57% of Hispanics and 63% of blacks cash out their small balances, the paper notes.