Over the past few years, it has come to light that the 401(k)/403(b) plan is a benefit preferred by white men. This would stand to reason, as much of the design, communication, investments, and messaging has been created by white men. Some studies show that when it comes to savings priorities, white men are the only group that ranks retirement as the number one savings priority.
Does this mean it is time to nuke the 401(k)/403(b) plan? Of course not. But, at a time when so much focus is on diversity, equity, inclusion, and belonging, it is also time to make sure we design and communicate this benefit so that it works for all employees.
What does this mean? It means that we must stop telling all employees that saving 10-12% in the company retirement plan is the answer to all their problems. At a time when financial stress reported in the workplace is at an all-time high, we need to be thoughtful about how and when we address financial benefits for all employees. For example, as reported in one study, Black employees are more likely to prioritize educating their children as their number one savings priority. It is not likely that retirement is causing this individual stress. And if the only messaging employees receive is around retirement, not only are we not addressing their needs, but they will also see an employee benefit plan that is not inclusive. There are several ways to address this through design. Many organizations are looking at creative ways to coordinate education savings and retirement savings. There are also many financial wellness tools that can help employees prioritize their savings, set a budget accordingly, and use a coach who considers each employee’s unique and diverse financial situation, when it comes to complex financial decisions. Ideally, we can help with behaviors that influence employees to address their most pressing financial needs and still save some, even if not the maximum (yet), in the retirement plan. Instead, we typically see total disengagement from the benefit, so employee are neither addressing their most pressing financial issue, nor are they saving for retirement.
Another study reports that Latinx employees’ number one savings priority is meeting their monthly obligations. It is hard to imagine what a trigger it must be to hear someone telling an employee in this situation that s/he should be saving 10-12% in his/her 401(k)/403(b) plan. I would imagine that an, already financially stressed employee would incur even more stress at a group meeting when a stranger explains s/he will never be able to retire without saving 10% in a 401(k)/403(b). I do not think it is a leap to say that we can all agree that the last thing we want the company retirement plan to be is an additional source of stress. Again, there are many ways to design a 401(k)/403(b) plan that incorporates basic budgeting, and savings for unforeseen expenses.
Finally, most reports show that women are far behind when it comes to retirement plan savings rates. Some studies suggest women save about half of what their male counterparts are saving, as a percentage. And since the measurement is a percentage, it is controlled for what are almost always wage and salary differences. Incorporate the fact that women are making less, will have lower Social Security as a result, and are more likely to be alone in retirement, it becomes clear that something needs to be done. Again, messaging around investments and tax savings typically appeals more to men. There are certainly ways to design communication around topics more appealing to each individual situation.
Very often, I get asked, “What do I do if my vendor’s materials don’t address the individual needs of each of my employees?” This is a common issue. One idea is to use the experience of more senior employees who may look like or identify with some of the younger employees we are trying to engage.
Finally, while automatic enrollment and automatic escalation have been around for a long time, very few companies avail themselves of these game changers in an effective manner. Talk about one easy way to level the playing field. And the ship has sailed off from the argument that our employees will not like having money deducted from their pay. This is something that even this dinosaur realizes was never an argument that held very much water. In most cases employees are grateful for these added features.
Now is the time to take a good benefit that was designed by white guys and for white guys and turn it into a great benefit that is inclusive, and addresses all areas of financial concern, for all employees.