How Plan Sponsors Are Working to Close the Gender Savings Gap

With women still lagging in retirement savings, plan sponsors are making changes across retirement, health care and financial wellness to ensure access is as equitable as possible.

Plan sponsors are bolstering the amount of attention and effort paid to benefits’ gender equity, focusing on more equitable access to benefits across retirement, health and financial wellness.

Four plan sponsors operating in distinct businesses—discerning that, historically, women have lived longer and saved less, due to lower earnings and a higher rate of leaving the workforce for caregiving responsibilities, than men—regularly review their benefits offerings and implement plan design changes. With an eye toward boosting equitable access to benefits, they have adjusted employee compensation, added mental health benefits, used targeted communications and maintained affordable employee medical care for workers.

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These progressive plan sponsors have used analysis of their plan demographics to grasp the needs of their workforces.

“The whole idea is to help [workers] feel more financially ready, and then, when they feel more secure in their finances and what they’re doing, then maybe they can feel more secure in setting money aside in retirement,” says Angela Garcia, a senior manager of retirement at the Baylor College of Medicine in Houston. “Whereas when I first started in retirement years ago, the biggest concern was, ‘OK, give people education on investments,’ and that was pretty much all you did.”

Mining plan data has helped plan sponsors discern that every employee benefit offered affects another, because retirement contributions, medical bills, credit card debt, student loan debt repayments and wellness programming all, ultimately, are financial concerns.

“If an employer provides a financial wellness solution that includes some kind of data loop that brings back to the employer [and] the vendor anonymized information about their population that gives them an insight as to what’s most important—what are their biggest concerns, priorities, as well as how do they process financial information [and] where are their anxieties?—that empowers and allows the employer to be much more specific and targeted in their solutions,” explains Jonathan Price, the national retirement practice leader at benefits and human resources consultant Segal.

Although several of the plan sponsors interviewed have focused more attention on boosting equitable benefits across gender, persistent disparities have remained in retirement plan access and savings. Recent research from the Pension Research Council found that 48% of men reported having a retirement account, compared with 43% of women.

Why Equitable Access Makes Sense

Plan sponsors say equitable access to benefits is just good business.

Diverse workforces and greater equitability, including more access to retirement, health and wellness and mental health benefits, improve the long-term viability of businesses, explains Mark Smrecek, the financial well-being market leader at WTW.

“Apart from benevolence, there’s a very, very strong tie to business in several key areas, the first of which is from a talent point of view, having equitable access to benefits means that you’re able to attract and retain the right employees, regardless of their cohort,” he says. “This has been a key issue over the past several years, where making sure that organizations are not only equipped to do exactly what they’re intended, but to be best in market and the ability to … attract and retain women in the workforce, men in the workforce, and all sorts of other affected communities in this space is absolutely critical from a talent perspective.”

Greater workforce diversity, equity and inclusion will extend to the entire workforce and company overall, adds Thea Ammon, a senior benefits administrator at OneAZ Credit Union.

“It’s important to have a diverse workforce, period,” she says. “The more different backgrounds [in the workplace] … it’s better for everyone.”

Lucas Hellmer, director of compensation and benefits at engineering firm Salas O’Brien, explains that financially stressed employees are less productive and tend to be shorter tenured.

“Work bleeding into your personal life can also have some negative consequences as well, [because] those people may not be successful with your organization and may ultimately leave [because of] something that may be preventable,” explains Hellmer. “It’s all about retention: It’s not always about profit and loss. … It’s [also] doing the right thing for team members.”

Plan sponsors are plotting to boost retention and reap the rewards of more equitable access to benefits, bolstering pay and benefits for employees while adding benefits including mental health programming.

Boosting Pay

Progressive plan sponsors have a greater understanding that for participants, developing optimal financial behavior for retirement requires solid financial behavior. Retirement is a financial issue, and financial concerns affect retirement planning and employees’ retirement security.

In 2022, “OneAZ made a proactive decision to adjust all wages to salary midpoints,” explains Ammon. “All like positions would be paid the same, regardless of tenure. Of course, anyone above midpoint remained at this wage status.”

The change was intended to drive equitable access to retirement and other benefits.

“While this provided a variety of different positive outcomes [reducing turnover, aiding in talent acquisition and addressing wage compression], it also level-set everyone with transparency,” explains Ammon. “With our [Diversity Equity Inclusion and Belonging] initiatives, the transparency allowed reassurances of equitable pay.”

Boosting Benefits

OneAZ has used automatic features in its plan designs—including auto-enrollment and auto-escalation—and has also used qualified default investment alternative funds, shortened vesting and adjusting the employer match formula for more equity across gender, as well. Previously, the plan used six-year cliff vesting, explains Ammon.  

Another plan sponsor, Salas O’Brien, this year added paid parental leave for both men and women, mental health support and access to the stress management platform Headspace, says Hellmer.

ASM Research plans to add mental health programming to its roster of available benefits in 2024, explains Tammy Lassiter, a senior retirement plan administrator at the Fairfax, Virginia-based plan sponsor.  

“That’s happening because we want people to have more access to mental health providers,” Lassiter says.

The plan sponsor is also making a plan design change next year—reducing from two to one the number of loans an employee can take—supporting participants’ best interests in the long term, according to Lassiter.

Every Benefit Is Financial

At OneAZ, the plan sponsor’s efforts at boosting equitable access to benefits are focused on tying together health and wellness benefits. Providing affordable medical care, wellness and mental health benefits will ultimately drive retirement plan participation and employees to contribute greater amounts for retirement.

Driving more equitable access to benefits is “making sure that everything is affordable,” says Ammon.

The Phoenix-based credit union’s workforce population consists of 62% women, which means “pregnancy is our leading expense, but when you make [medical care] affordable, then the person is less likely to have to dip into that 401(k) for those medical expenses,” Ammon adds. “It’s hard to drive 401(k) participation if you have something else that’s interfering with that, so it’s really looking at: What are those obstacles?”

Conversations about medical care and retaining affordable benefits can start the process to change other areas of benefits and compensation, she adds.

“Associates are not focused on ‘Oh, I have to pay this medical expense, I have to pay my student loans, I want to work out but I have to pay for the gym: Do I pay for the gym or do I save the money?’” Ammon explains. “So if you’re reducing those financial barriers to the rest of [their] life, then the individual has more room to save.”

Closing the Gendered Retirement Savings Gap

Recently, ASM Research added an education strategist from retirement and income solutions at Principal to the plan, Lassiter says.

The specialist reviewed and analyzed the plan, revealing that women participants were saving less for retirement than men.  

“It’s not a huge gap, but it is definitely a gap, when you see [in] every single chart, the women are saving less,” explains Lassiter. “Then we’re wondering, ‘OK, what should we do about it?’”

Driving down that retirement savings gap is now a plan goal, she says.

“I’m going to send out a couple of targeted communications pieces to just the female population—so they understand what we already have to offer—[that] talk about the importance of budgeting and emergency savings and … try to get them to schedule a one-on-one meeting with a financial planner, which we offer,” Lassiter says.

Lassiter is considering forming affinity groups of women and holding education sessions in which women can become more engaged with money and finances.

“[A] focus group would be a good idea, because as a woman, I might understand some of the things that they’re going through and why they’re not saving, but I shouldn’t be assuming what those are, because everyone’s situation is different,” Lassiter adds. “That’s my strategy that I have not yet implemented, that I plan to do and try to get some kind of cross section of people … to talk to [employees] about, ‘What can we do from our side?’ or ‘What can we provide to them that would help them save more money for retirement?’”

Serving Growth-Asset Needs of Older Participants, Retirees

Incorporating alternative assets into a defined contribution investment lineup is an opportunity to reflect older participants’ desire for growth, experts say.

Amid widespread concerns about inflation and the rising cost of living, it is not uncommon for older retirement plan participants, or even retirees, to look at their assets and feel a sense of dread. As individuals near retirement, they may feel a need to use their investments to play “catch-up.”

Defined contribution investment menus often do not reflect the needs of participants who want to see considerable growth in their assets at a later stage of life, as traditional asset classes like target-date funds are designed to become more conservative over time.

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Incorporating alternative assets into an investment menu, while a rarity in defined contribution plans, could potentially allow for significant growth, according to Jeremy Stempien, a principal, portfolio manager at PGIM DC Solutions.

“On the whole, I would say that we don’t think that [investment menus] do a great job of incorporating some of those alternative assets that can really move the needle,” Stempien says. “[Alternative assets] can add on a significant number of years of retirement income.”

A recent Georgetown University Center for Retirement Initiatives report, for example, found that for an individual participating in a DC plan, investing in a mixture of private equity and real assets, done over the course of a career, could result in an additional $2,400 per year in spending power for a retiree with $48,000 per year in retirement income.

Downside Protection Is Key

Stempien says older participants should have a balance of growth assets and protection against some key risks, such as inflation and the volatility of the market. He adds that inflation is more of a “subtle risk” to a person’s retirement savings, because, if all they are doing is drawing down from their portfolio, they have no income to offset inflationary bill increases.

Mercer’s “Top Considerations for Defined Contribution Plans in 2023” report argued that portfolios diversified with real assets historically have weathered inflation and market volatility better and have “highlighted the need for including diversifying asset classes managed in a risk-controlled way.”

While alternatives are not commonly found in DC plans, the authors of the Mercer report said exposure may be offered through TDFs. Stempien says incorporating alternatives into TDFs could produce “the most impact for participants in the defined contribution industry.”

But because of litigation related to alternative assets, as well as a lack of understanding, Stempien explains that there has been little uptake of alternatives among DC plan sponsors. In addition, these more non-traditional asset classes are often more expensive than the traditional asset classes typically offered.

“I think to a plan sponsor, where a lot of the rhetoric in the DC market has been about reducing fees, they see something like that, and it gives them pause in adding [alternatives],” Stempien says.

He argues incorporating some of these non-traditional asset classes into a diversified portfolio could be more cost efficient.

“You don’t want to offer certain asset classes that can end up taking the fee of your portfolio to some really large expense ratio that’s outside of the norm,” Stempien says. “You can balance that by just incorporating some of these asset classes, that at standalone might be more expensive, into a diversified portfolio.”

An argument against using illiquid investments in a DC lineup is that it is difficult for investors to get daily pricing and regularly check their balances. Those assets tend to be harder to sell quickly because there is low trading activity or it takes longer to find qualified investors. Illiquid assets also can have greater price volatility.

But Stempien argues that there are now vehicles in many of these asset classes that are valued daily and provide daily liquidity.

“I think that has been a hurdle historically, and for those solutions that don’t [provide daily pricing], that is something that they need to address,” Stempien says.

Investment Menus Should Reflect Diverse Needs

Carl Gagnon—assistant vice president of global financial well-being and retirement programs at Unum, an insurance company based in Chattanooga, Tennessee—finds that when people reach their 50s and 60s, if they have not saved enough, they try to compensate by being more aggressive with their retirement investments.

“I think people are trying to continue to gain that return on their investments, especially if they have other resources,” Gagnon says. “If they’ve got some partial income and are only drawing down a little bit, they want to be reinvested in any remaining balances.”

At Unum, Gagnon says the firm works with Fidelity Executive Services, which helps provide a variety of 401(k) investments from which participants can pick and choose.

In addition, Unum launched a partnership several years ago with the financial wellness platform Brightside, which provides a one-on-one financial concierge service for employees. Gagnon says the service is available to employees who need advice about their finances and drawing down their assets in retirement, as well as other immediate financial stressors, such as paying off debt or refinancing a home.

“Providing the tools and resources necessary is important so as people transition to different stages in their lives, including decumulation, they have some guidance [and can] go to somebody from a company, or a plan sponsor, that they’ve trusted throughout their career, versus going into the jungle of the retail environment, where they may not have that ERISA oversight and fiduciary protections,” Gagnon says.

Michael Doshier, a senior defined contribution strategist at T. Rowe Price, believes that if participants have done a good job saving before retirement, they tend to “take risk off the table appropriately.”

“If you haven’t done such a good job saving, you need to continue to have that growth in [your investments], because you could be planning for a 30-year retirement,” Doshier says.

He argues that the value created by higher-growth-oriented portfolios usually “far outweighs the short-term market volatility.” Over time, T. Rowe has found that while the percentage drop in more aggressive portfolios can feel shocking for a quarter at a time, the overall value of the underlying account is still greater than more conservative investments.

Doshier adds that it is important for plan sponsors to analyze the demographics of their participants to make sure adding riskier or illiquid assets is worthwhile. Participants in their 50s and 60s have diverse financial needs, depending on their savings history and other factors, and Doshier says plan sponsors should think of retirement income as a “sequence of products” that can apply to various situations.

Opportunity in Managed Accounts

Stempien points out that managed accounts have become a more attractive option for plan sponsors as pricing has come down, and managed accounts are now more competitive with TDFs, to which plans typically default.

Managed accounts can be another vehicle that plans offer to enable participants to incorporate non-traditional asset classes, as they create individualized, managed portfolios.

“These portfolios are built for individuals in an institutional type of offering where you’re getting these solutions for much cheaper than you often could, and it’s put into a portfolio to manage risk,” Stempien says.

The main differentiator between a managed account and a target-date offering, according to Stempien, is the added level of customization. Managed accounts are able to “toggle the risk level up or down” depending on an individual’s unique situation.

Stempien emphasizes that achieving growth also means adding protection on the downside for inflation and market volatility.

“When we are building and modeling our portfolios for retirees, it’s more about saying, ‘Yes, we want to capture some of the upside growth,’ but when we see volatility in the market, we want to make sure that we’re protecting better than what most other solutions do.”

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