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How to Improve Retirement Readiness in Under-represented Groups

Client Services

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.