A Plan Design to Drive Retirement Savings Equity

Plan sponsors can increase the retirement plan participation rates, savings rates and average account balances of African American and Latino employees by implementing  plan designs like automatic features, new Voya Financial data shows.

African American and Latino workers have lower retirement plan participation rates, savings rates and average account balances compared to white and Asian American workers but the gap closes significantly in plans that offer automatic enrollment, argues a thought leadership paper based on the research.

Data shows that African American and Latino employees have added financial challenges which lessen plan participation and savings rates and lower average balances for retirement. African American and Latino workers also face greater barriers when saving, which can negatively impact retirement outcomes, according to the Voya report. 

Voya data shows the average African American and Latino worker reported lower retirement plan participation, at a rate of 53% for African American workers and 45% for Latino employees, compared to a participation rate at 66% for white employees and 62% for Asian Americans.

The average retirement plan account balance is similar, with White and Asian American workers with higher average account balances saved than their African American and Asian American counterparts: the average account balance for whites was $99,000, Asian Americans $86,000, African Americans $45,000 and Latinos $43,000.

The Voya data also show African American and Latino employees have lower levels of financial confidence: 59% of white employees and 56% of Asian American employees expressed feeling financial confidence, compared to 43% of Latino and 37% of African American employees.

“Inclusion does not happen organically; organizations must be intentional at every level and apply a DEI lens to savings and benefits solutions to ensure all communities have the access, support and tools to clear the path to financial confidence and a more fulfilling life,” states Angela Harrell, senior vice president, chief diversity and corporate impact officer at Voya Financial, in the paper.

Savings Falter

Asian American workers had the highest average retirement savings rate at 9.5%, followed by white workers at 8.4%. The average savings rate for African American employees was 7.1% and the average savings rate for Latino workers was 6.9%, data shows.

Demographics are a factor for how employees manage their emergency savings as well as 40% of Asian American, 45% of white, 69% of Latino and 70% of African American employees said they were off track with their emergency savings.

Employer Strategies

The paper argues that proven employer strategies cam help close the retirement savings gaps for African American and Latinos by including automatic features in plan designs. Voya found that while African and Latino employees have lower plan participation rates, “the gap closes significantly in plans that offer automatic enrollment,” Voya states in a press release with findings.

“Over the last several years, employers have increased their focus on driving greater inclusivity, which has led to positive outcomes in the recruitment and retention of a more diverse workforce,” states Rob Grubka, CEO, workplace solutions at Voya. “Our research has found that employers can take this a step further by now focusing on opportunities to create greater value out of their benefits and savings programs by understanding and acting upon the unique needs of their employees,” sHowever, despite the efforts supported by many employers today to drive greater outcomes, the dimensions of a strong retirement plan, such as participation and savings rates that can drive these outcomes, still remain a challenge for many individuals today, particularly among certain employee communities.”

Plan sponsors that use automatic features like automatic enrollment can boost the savings rates of African Americans and Latinos, finds Voya. 

Black and Latino employees “have a two to three times higher participation rate” compared to their peers at employers who do not offer automatic enrollment, states the paper. 

Voya conducted the analysis in June 2022. The research examined retirement plan participant data from six Voya plan sponsors representing over 163,000 employees.