The earnings and wealth gaps between whites and minorities are enormous, according to numerous sources, including SHRM and the Center for Retirement Research at Boston College. As reported by SHRM, the “gap between retirement wealth between Black and Hispanic workers and their White counterparts is staggering.” The Center reports that non-Social Security retirement savings held by White households in 2016 averaged about 7 times the amount for Black households and about 5 times the amount for Hispanic households. Factors that contribute to this retirement wealth gap include unequal pay, shorter job tenure, higher unemployment rates, and lack of access to, or participation in, retirement savings plans by Black and Hispanic employees.
Of course there is much to be done to close unemployment, position, tenure, and wage gaps, but there are steps that you as an employer can take now to make sure all of your employees are taking full advantage of their retirement benefits. What are some specific actions employers can take in their retirement programs to help close the gap?
First, identify your participation gaps and talk to your employees. Take a look at your data so you understand the demographics of your plans. Consider having one-on-one, informal conversations with underrepresented employees to learn what the barriers to their participation are.
Next, focus on education. Rather than just encouraging participation by all, focus on those who are not participating, or who are contributing at low levels. Make sure your education efforts are reaching those employees. Of particular importance is communicating the security of the plan funds, explaining the in-service withdrawal options, and highlighting that there are default investment option(s) managed by professionals. Contrary to popular belief, most employees rarely make changes to their investment choices, and many would prefer to rely on investment professionals who manage the investment of the default funds.
And, perhaps most importantly, evaluate plan provisions that may have a disparate impact on minorities. Consider provisions that foster participation and greater accrual rates:
- Automatic enrollment and automatic contribution escalation significantly improve plan participation and increase savings, benefiting all classes of employees at retirement.
- An employer non-elective contribution that goes to all eligible employees—regardless of whether they are making contributions —ensures that all employees are participants and will receive quarterly statements. Such statements remind them about the plan, demonstrate how balances grow over time, and hopefully foster trust in the program. Even a contribution of only 1 percent of pay a year by the employer will make a significant difference in the retirement security of employees.
- Consider the adverse impact of long waiting periods and vesting schedules. Today’s employees typically don’t stay in one place for more than a few years. Permit immediate or early participation for their own contributions, even if they have to be employed at the end of the year to share in the match. Provide partial vesting credit in the first year of employment.
- In pension plans, include the first year of employment in credited service, especially when employees aren’t eligible until after a year of service.
Open communication enhances employee trust and engagement in all circumstances. Contact our benefits professionals for further discussion.