For plan sponsors wondering what they can do to help diverse
workers increase their retirement savings, a new paper outlines plan features
and strategies that can help bolster savings for underserved workers.
In Improving Retirement Readiness for Underrepresented
Groups, Alight explains that employers have benefited from a diverse population
of employees, as these individuals brought unique perspectives to the
workplace. These employees have also brought a wide range of retirement savings
behaviors that have not necessarily led to positive outcomes, 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 U.S. workers has doubled since 1979 and currently stands at a quarter
of the workforce, with the Hispanic portion growing from 5% to 18%. What’s
more, over the last several decades, women increased from about a quarter of
the civilian work force to nearly half. In addition, about 10 million
U.S.-based workers have a disability and over 5% of U.S. adults identify as
LGBTQ+, including one out of every six members of Gen Z, Alight notes.
Meanwhile, companies which have been focusing 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 executive teams achieved
profitability that was 36% higher than those in the bottom quartile.
As such, employers appear to be turning their attention to
reviewing their diversity and inclusion efforts. According to Alight’s
research, 8 out of 10 companies say they are “very likely or moderately likely”
to expand inclusion and diversity efforts in their retirement and financial
wellbeing plans in 2022. This includes examining their financial benefits to
determine if employees have an equitable opportunity to enhance their financial
wellbeing.
Given this backdrop, Alight offers six steps that can help
plan sponsors increase savings for historically under-represented groups.
Embed financial wellbeing principles within retirement plan
design. Since there continue to be wide discrepancies in the amount of emergency
savings among racial and ethnic groups, employers should consider helping
workers build up savings for non-retirement needs. This could be an out-of-plan
dedicated program aimed at helping workers establish emergency savings, or
might entail adding plan features like after-tax contributions that allow
workers to access their savings without as many penalties and restrictions as
pre-tax accounts, the paper notes. “Even among resolute retirement savers,
emergencies can throw well-laid retirement planning into a tailspin unless
there are sufficient savings in place,” Alight observes.
Consider DE&I in the investment selection process. While
few companies have examined the culture and diversity of the asset managers in
their 401(k) plans, nearly 40% of employers said they were very likely to do so
in 2022, the firm notes. “Since diversity, equity and inclusion form the
backbone of the ‘S’ in ESG (Environmental, Social, and Governance) funds, there
could be increased interest for funds that invest in companies with DE&I
initiatives,” the paper states.
Have a diverse savings communication strategy. Alight
suggests that benefits such as a 401(k) plan or financial wellbeing tools are
only worthwhile if workers use them, so having a robust communication strategy is
critical. Among the firm’s suggestions are to:
tailor communication strategies to the individual;
establish standards for inclusive language;
be authentic such as using photos of actual workers or
clients, instead of stock photos; and
ensure that all content is accessible, along with going
mobile.
Provide benefit equity in the retirement plan. To address
differences in the participation rates, employers can take steps to diminish
the differences, such as providing workers with a contribution that is not tied
to a match. Alight notes that about a quarter of large plans currently have a
nonelective feature like this. Employers can also tweak the matching formula to
help keep the costs consistent with the current program, the paper
suggests.
Align retirement plan design with DE&I research. While
automatic enrollment is good at getting workers into the plan, Alight notes
that its data shows that people who are subject to automatic enrollment save
less than those who are not. To help combat this, employers have changed plan
provisions to increase the initial default rate, add contribution escalation
and raise the escalation ceiling, the paper notes.
Facilitate financial stability during employment changes.
Finally, implementing auto-portability can help reduce the number of automatic
cash-outs that occur when people change employers, Alight suggests. The impact
of cash-outs is most profound for marginalized groups. While less than a third
of all DC participants cash out small balances, 57% of Hispanics and 63% of
blacks cash out their small balances, the paper notes.
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