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Addressing Racial Inequities in Retirement Savings

Addressing Racial Inequities in Retirement Savings

​Marlo J. Gaal, SHRM-SCP, is chief talent officer at Chicago-based Ariel Investments, a Black-owned mutual fund investment firm. As businesses began prioritizing diversity, equity and inclusion (DE&I) strategies over the past 18 months, Gaal received inquiries from HR colleagues about “all things DE&I,” save one at the heart of Ariel’s business.”To be honest, I have not gotten a direct request” on increasing Black investors’ savings rates, Gaal said, although Ariel publishes an annual survey with Charles Schwab detailing Black investors’ statistics and sentiments. The latest survey, conducted in December 2020 among 2,104 U.S. adults with $50,000 or more in household income, found that historical disparities remain pronounced, even when excluding low-paid workers. For instance: Dollar contributions. White 401(k) plan participants, on average, invested 26 percent more per month toward their retirement accounts than Black 401(k) plan participants ($291 versus $231). Loan-taking. More than twice as many Black 401(k) plan participants than white participants (12 percent versus 5 percent) borrowed money from their retirement accounts.The findings reflect long-standing wealth disparities in the U.S. According to Federal Reserve Board statistics compiled in 2019, the median net worth for Black families was $24,100, for Hispanic families $36,050, and for white families $189,000. Racial Inequities in 401(k) Savings: Another ViewT. Rowe Price’s Retirement Savings and Spending Study highlights racial disparities in 401(k) plan participation and savings-deferral rates, based on 3,420 participants who responded to a June 2020 survey.Among employees with access to a 401(k) or similar defined contribution plan at work, the survey showed: Source: T. Rowe Price, Retirement Savings and Spending Study (2021).”Better understanding the challenges underrepresented groups face can help employers and financial professionals develop strategies to help ensure participants of all races and ethnicities thrive financially and retire successfully,” said Dee Sawyer, head of individual investors and retirement plan services at T. Rowe Price.Taking a Broad ApproachGaal advised HR leaders to take a broad look at what they can do to help employees save, bearing in mind the challenges faced by members of communities that have been historically disadvantaged. Ariel, for instance, completely funds employees’ health insurance premiums, freeing up more of the workers’ paychecks for other allocations. Emergency savings accounts are also becoming more common as an employee benefit.”There’s no magic bullet,” Gaal said. “HR executives, along with their [C-suite] peers, need to assess [workforce] demographics, your industry, what you can afford, and put a plan in place that makes sense for your organization.”Kezia Charles, director of retirement at consulting firm Willis Towers Watson, sees a new emphasis on DE&I efforts in retirement counseling planning. In a recent post on the Willis Towers Watson blog, Charles outlined steps employers can take to ensure DE&I in retirement planning is adequately addressed, such as: Measuring plan data and analyzing metrics by diverse cohorts. Look for low deferral rates, missed employer-match opportunities, loans, withdrawals and wage garnishments to highlight segments of the population that are more likely to have long-term financial insecurity. Reviewing plan design and access to it. According to Willis Towers …