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5 ways organizations can enhance financial inclusion of retirement plans

A focus on Black and African American employees

Inclusion and Diversity|Retirement|Total Rewards

By Kezia Charles, FSA, EA | March 1, 2021

Is it possible for an employer to demonstrate a commitment to diversity, equity and inclusion without addressing disparities in retirement benefits?

Many employers have made public commitments to diversity, equity and inclusion (DEI) in their environmental, social and corporate governance reports or CEO statements. These commitments frequently impact all aspects of the employee experience from hire to retirement. However, according to the Survey of Consumer Finances, 2019, only 35% of Black families participate in any type of retirement savings plan, including individual retirement accounts and employer-provided defined contribution (DC) plans. As part of their commitment to DEI, employers can help to better prepare Black employees for retirement by helping ensure that they have adequate retirement savings.

The good news is that many employers have begun to review retirement benefits through a DEI lens. According to Willis Towers Watson’s 2020 Defined Contribution survey, nearly two-thirds of plan sponsors have reviewed or plan to review aspects of their DC retirement plan as part of their DEI strategies.

Here are five considerations for employers and plan sponsors when doing such reviews:

  1. Measure plan data and analyze metrics by diverse cohorts. The first step is measuring and analyzing employee financial security by cohort. There are several factors in DC plans that signal short-term financial insecurity, including low deferral rates, missing employer match opportunities, loans, withdrawals and wage garnishments. Further analysis of financial information can highlight segments of the population that are more likely to have long-term financial insecurity.

    Employers can engage employees through employee surveys and focus groups to understand employee needs and the benefits they value. Employers then can use these analytics and employee preferences to improve employees’ engagement in their benefits and make plan changes, where appropriate.
  2. Review plan design and access to it. According to Willis Towers Watson’s 2019/2020 Global Benefits Attitudes Survey (GBAS), 48% of Black employees indicate that they are living paycheck to paycheck, compared with 37% of white employees. These employees are more likely to have immediate financial concerns and are less likely to prioritize saving for retirement. What’s more, they can generally defer little or no pay into their DC plans, resulting in an insufficient benefit upon retirement.

    Employers should take the ability to save into account when evaluating the effectiveness of plan design features, including employer match and non-elective contributions, auto-enrollment/escalation and integration with other programs such as student loan repayments. For example, employers that have only a matching component of their plans should consider redesigning them to include a non-elective component.
  3. Evaluate the impact of pay on employees’ ability to save. Retirement benefits are generally based on an employee’s compensation. Therefore, pay inequities will impact how much employees are able to save. Black workers are 30% more likely than white workers to earn less than $50,000, and white workers are five times more likely than Black workers to earn $200,000 or more. Employers hoping to address savings gaps should also review pay practices.
  4. Consider tools and resources to improve financial resilience. Black people tend to face more discrimination in the banking industry. Nearly 50% of Black households are unbanked (not served by a bank or similar financial institution) or underbanked (do not have sufficient access to mainstream financial services and products typically offered by retail banks). These employees face higher costs of basic financial transactions and have less exposure to other financial resources banks provide. Employers can consider several options to build financial resilience that include adding features to their plans and providing access to financial planners, especially for employees who apply for loans or withdrawals from their savings.
  5. Focus on financial literacy and decision support. Employees are asking their employers for support in making financial decisions. While choice helps meet the needs of a diverse and multigenerational workforce, navigating choice with limited support can be confusing for employees, especially employees with low financial literacy. Consider these statistics:
    • According to our GBAS findings, 46% of employees with low financial literacy find making financial decisions stressful, compared to 25% of employees with high financial literacy.
    • Additionally, Black people reported lower financial literacy than their white peers.
    • Further, according to the GBAS, 40% of employees will trust tools their employers provide more than tools they can find online.

These findings indicate that there is a greater need for employers to support financial literacy for their diverse employees. Financial literacy tools and resources are most effective when they are relatable and understandable and provide guidance on how employees can improve their financial situations.

Taking DEI a step further

It is essential that as employers (re)commit to DEI, they review their retirement plans to align with their DEI goals and objectives. They can support employees’ financial wellbeing by measuring the effectiveness of retirement plans in meeting employee needs, redesigning plans when necessary and considering the impact of other components such as pay.

Additionally, employers can enhance employees’ ability to make optimal choices by providing financial literacy tools and decision-support and other resources to build financial resilience. A true commitment to DEI means that employers bear the responsibility of ensuring that benefits are equitable and that all segments of the population will be prepared for retirement.

Note on terminology: Throughout this article, the term "Black" is used to represent both Black and African American.


Director, Retirement
North America Multicultural Inclusion Network, co-lead

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