Right now in the HR circles I travel in and with the companies I speak to, quite possibly the number one thing on everyone’s mind is diversity. This topic has been around for a bit, and many companies have wide-ranging approaches to incorporating diversity into their organizations.
Lately, the conversation has moved far beyond “checking the diversity box” or focusing on diversity because it is the “right thing to do.” Companies have come to terms with the idea that they will not be able to compete or survive if diversity and inclusion are not being woven into their strategic fabric.
Most important is the word inclusion. You can improve all of your hiring practices, but do people feel like they are part of the team? If not, you will have a revolving door of talent.
When it comes to diversity and inclusion, the reality is customers are demanding it, employees are seeking it and businesses are thriving with well-thought-out diversity and inclusion practices.
So what does all this have to do with company retirement plans? Well, it turns out quite a bit. Enter stage right the inclusion part of the conversation. As an example, if a company improves hiring practices by doing a better job with female candidates, but those women are contributing roughly half of what men contribute to the 401(k) or 403(b) plan, this is a potential inclusion problem. If, as an organization, you realize that people of color are not contributing in meaningful ways to the 401(k) or 403(b) plan because they are more likely to be overburdened by student loan repayments, again, you may have an inclusion problem. This is a situation I was made aware of while working with a client. We were able to identify that if you were a person of color at this company, you were less likely to be contributing to the 401(k) because of high student loan balances. Additionally, you were less likely to be getting the benefit of the company match.
Diversity is being invited to the party. Inclusion is being asked to dance.
The stats that came out most recently regarding the savings rates of women versus men are staggering. This is especially noteworthy for the 21-37 year age group. One could argue that we would expect better progress in an age group that seems to be achieving better gender parity than any before them.
Here’s what we know: Women are more likely to be alone in retirement due to divorce and mortality rates. Women are likely to live longer. Women will likely collect a lower Social Security benefit stemming from past gender pay equity issues.
Yet: Women ages 21-37 are saving 5% of their paychecks toward retirement, versus men, who are saving 8%. Women in this age group have an average balance of roughly $12,000, versus men who are at about $42,000. We’re beyond traditional gender roles, and we need to face the fact that there is something systemic that’s broken. We are not engaging women in this conversation properly. There are several reasons this disparity exists, too many to dive into here. Some would and do say, in addition to a diversity and inclusion issue, there is a gender pay equity issue. Excluding the match, we are definitely talking about future pay considerations. When we include the match — Most companies match up to 6% - there may be an actual pay disparity. If we start getting into single working mothers, the percentage savings rate drops well below 5%. For that group, we must avoid the “Well their priorities are different” conversation. I have heard that way too often.
What actually needs to be done is to have a meaningful conversation at the individual level around basic financial literacy, budgeting and saving. The picture of the golf cart or the beach house on the 401(k) plan materials is not cutting it, and it never really did. The conversation has to be tailored to each individual situation.
When a company begins to address financial literacy in this manner, it is, by default, addressing the areas and individuals that need the most help, but have the hardest time finding it. This usually means employees on the lower end of the economic spectrum. The unfortunate reality is that the people on the lower end of the economic spectrum are people of color and women. And when a company addresses the financial stress of the people who have the most stress, they will see organizational benefits and will be able to call what they have, a true, financial wellness strategy that is inclusive and is for all employees.