Benefits October 6, 2023

5 Ways Employers Can Improve Retirement Readiness for Underserved Participants

From incorporating an in-plan emergency savings vehicle to facilitating auto-portability, employers can take actionable steps to help disadvantaged workers save for retirement, Alight advises. 

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In order to bolster retirement savings for underserved workers, employers can take advantage of a wide array of plan features and strategies designed to improve retirement readiness. 

In a new white paper, Alight Solutions outlined numerous ways employers can make retirement savings more accessible for workers from racial and ethnic minorities and the LGBTQ+ community, all of whom have historically fallen behind in saving for retirement. 

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Embedding Financial Wellness in Plan Design 

According to the Survey of Consumer Finances, white families typically have more than four times the amount of emergency savings as families of color, and 36% of white families would be able to cover six months of living expenses, compared to just 14% of Black families and 10% of Hispanic families. 

As a result, people of color in 401(k) plans are more likely to take out a loan from their account to pay for an emergency expense, further hurting their retirement readiness.  

Additionally, only about half of LGBTQ+ respondents said they would be able to get by without disruption if they had a sudden expense of $500, compared to 63% of the general population, according to Alight. There is also evidence that LGBTQ+ individuals have a harder time getting approved for bank loans, such as for a mortgage. 

Alight suggested that employers offer in-plan features like after-tax contributions that allow workers to access their savings without as many penalties and restrictions as before-tax accounts. The SECURE 2.0 Act of 2022 also included two optional provisions that would allow for participants to grow emergency funds in a sidecar account or to withdraw $1,000 from their retirement account per year with no penalties. 

An out-of-plan program dedicated to helping workers establish emergency savings can also be effective, according to Alight. 

Include DEI in Investment Selection Process 

Examining the culture and diversity of the asset managers represented in an employer’s 401(k) plan can also be a way to build employees’ retirement readiness. 

Alight’s paper pointed to evidence that investment managers with strong initiatives to enhance diversity and inclusion outperform their peers. For example, the Knight Foundation found both women-owned and minority-owned firms are overrepresented in top-quartile performers among mutual fund companies, hedge funds and private equity managers.  

With growing interest from Gen Z and Millennial participants in ESG investments, employers may want to consider including investments from diverse managers as an option in the plan. 

Communication Should Reflect Diverse Population 

When communicating about benefits and retirement to diverse groups of employees, it is important to establish standards for inclusive language, according to Alight. 

Using visual storytelling that features people from a range of races, body types and ages in photos is also an effective way to connect to participants. 

Alight found it crucial to “go mobile” with communication, as most people have access to a smartphone. Communications that cannot be accessed on mobile devices run the risk of excluding underserved populations. 

Tweak Matching Formula 

While features like automatic enrollment have helped close the gap between white and non-white participants in retirement plan contributions, significant disparities remain. 

Alight suggested that employers can provide workers with a contribution not tied to a match or can tweak their matching formula to help keep costs consistent with the current formula. For example, instead of offering a $1 for $1 match on 6% of pay, an employer could provide a $0.50 per $1 match on 6% with a 3% non-elective contribution. Plan formulas can also be tweaked to provide the non-elective contribution to more vulnerable populations, such as workers earning under a certain pay threshold. 

Employers may also consider implementing an automatic enrollment “sweep,” which would enroll non-participants into the plan unless the individuals opt out. 

Facilitate Auto-Portability 

Many people have a tendency to cash out their retirement savings when they change jobs, particularly workers with smaller balances. Yet this significantly hurts overall retirement readiness. 

By working with recordkeepers in Retirement Clearinghouse’s Portability Services Network—a consortium of retirement plan service providers seeking to help workers transfer low account balances from one employer plan to the next—employers can help participants avoid early cash-outs. 

While less than one-third of all defined contribution retirement plan participants cash out small balances, 57% of Hispanics and 63% of Black participants cash out their small balances, according to Retirement Clearinghouse.  

The country’s five largest recordkeepers by assets are now part of the network, including Alight, Principal, Fidelity Investments, Empower and Vanguard.  

Administration October 6, 2023

Citi Gets DOL Approval for Diverse Manager Plan Fee Payments

The bank’s attorneys tout a positive response from the DOL on the program designed to promote diverse asset managers in Citi’s benefits plans.

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The Department of Labor has approved a Citigroup Inc. program that promotes diverse investment management firms among the investment managers for Citibank-sponsored ERISA-covered employee retirement plans.

Citi had sought review from the regulator for its Diverse Asset Manager Program in which the bank commits to pay all or part of the fees of diverse asset managers for the ERISA plans it sponsors. The DOL gave its stamp of approval in an advisory opinion issued September 29, noting that plan sponsor decisions to pay fees and expenses are not subject to ERISA fiduciary standards, if all substantive ERISA requirements are met.

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“In the Department’s view, the Investment Committees’ members will not violate their fiduciary duties under ERISA section 403(c)(1) or 404 solely by virtue of considering as one factor in the selection process that an investment manager’s fees otherwise payable by the Plan will be reduced or paid in full by Citi under the program,” Karen Lloyd, chief of the DOL’s division of fiduciary interpretations, wrote in the opinion.

Lloyd wrote that the DOL would view appropriate consideration of the program and any related commitments “as another relevant financial factor in evaluating the fees to be incurred by the Plan in choosing among investment managers.”

Thompson Hine LLP, the law firm representing Citi, called the opinion “groundbreaking.” The firm wrote in an announcement that the opinion is the “first time” the DOL has weighed in on how much latitude a plan sponsor has in which plan-related fees it will pay or not pay.

The attorneys also said that the DOL laid out “explicit guidance” on how a plan sponsor can structure a “program based on the plan sponsor’s corporate interest in a manner that avoids application of ERISA’s fiduciary rules to that program.”

In the opinion, the DOL clarified that the selection of a plan investment manager or any plan service provider is subject to ERISA fiduciary responsibility, including assessing the provider’s qualifications, the quality of the services offered and the reasonableness of fees. How those fees are paid, however, are “settlor decisions not subject to ERISA fiduciary standards,” Lloyd wrote.

Citi’s attorneys noted that the program on which the DOL ruled is part of its Action for Racial Equity, designed to address the racial wealth gap among the businesses in which Citi operates.

Lloyd, of the DOL, emphasized that mission in the opinion, writing that “Citi’s experience has been that diverse managers’ market share lags their representation in the asset management industry for reasons unrelated to risk-adjusted returns.”

The regulator noted that, while it is possible under ERISA to make the decision to select diverse managers, it must adhere to the usual standards of a fiduciary choosing a plan service provider.

The DOL “would not view the Investment Committees’ members’ best judgment as fiduciaries as being influenced merely because they were aware of the program’s potential for generating reputational benefits to Citi,” the DOL wrote. “However, it would be inconsistent with the duties and prohibitions of ERISA sections 403, 404 and 406 for Investment Committee members to exercise their fiduciary authority for the purpose of advancing Citi’s corporate public policy goals.”

The regulator also made clear it was not advocating for the selecting of diverse managers as a fiduciary obligation in and of itself, but rather, an example of a choice made by a plan sponsor within the bounds of ERISA obligations.

“It is important to emphasize that this letter should not be read as expressing the view that it is inconsistent with ERISA’s fiduciary standards for an Investment Committee to ever consider diversity, equity, and inclusion factors as material to the merits of choosing a particular investment manager from a financial perspective,” the DOL wrote. “Citi did not ask for an opinion on that subject, and this letter does not address the issue. Similarly, this letter should not be read as expressing the view that a program like the one described in this letter is required for a fiduciary to select a diverse manager.”

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