Supporting Black and Latinx Workers With Income and Retirement Needs

A recent T. Rowe Price study highlighted steps plan sponsors can take to support underrepresented employees’ financial wellness.

In its sixth annual “Retirement Savings and Spending” survey, T. Rowe Price found Black and Latinx investors were more likely to have a lower 401(k) savings rate than white workers, at median deferral rates of 5% for Black workers and 8% for Latinx workers, compared with 9% for white workers. The survey also reported that 70% of Black heads of households and 63% of Latinx heads of households have access to 401(k) accounts, compared with 81% of white heads of households.

Additionally, Black and Latinx respondents were more likely to cite having student loan, medical and other types of debt that could further impact their retirement.

Understanding the challenges Black and Latinx communities have historically faced, including a lack of equal access to quality financial education and , is crucial when developing financial strategies, says Dee Sawyer, head of individual investors and retirement plan services at T. Rowe Price.

A person’s income level can play a role in his saving and spending habits—and whether he can stretch that income to invest in a 401(k) or other defined contribution (DC) retirement plan, according to T. Rowe Price.

A 2021 survey by PayScale, a U.S. compensation data and software company, found that even with the same education and qualifications, Black men only make 99 cents for every $1 paid to white men, while Black women receive 97 cents for every $1 paid to white men. And using a different metric that doesn’t take the level of education and qualifications into account, Latina women make just 53 cents for every $1 a non-Hispanic white man makes, according to the Economic Policy Institute (EPI).

The result, the firms say, is that non-white workers lose hundreds of thousands to millions of dollars over the years, thus creating an imbalance that extends to retirement savings. Therefore, instead of participating in a DC plan, those who earn lower incomes are forced to prioritize day-to-day needs or other long-term goals, including debt reduction, T. Rowe Price says.

“Employers have an opportunity to promote diversity, equity and inclusion [DEI] in defined contribution plans and help address broader social inequality,” Sawyer says. “Better understanding of the challenges underrepresented groups face can help employers and financial professionals develop strategies to help ensure participants of all races and ethnicities thrive financially and retire successfully.”

One way to ensure equal and fair incomes—which can result in higher savings rates among employees—is by conducting a pay equity analysis or a pay audit, says PayScale. Conducting an analysis clarifies if there is a pay gap within the organization and, if so, the size of the discrepancy. 

Another key way to support Black and Latinx workers is by speaking to them and understanding their individual needs, said Joshua Dietch, vice president of retirement and thought leadership at T. Rowe Price, in the study. “The first step in this journey may be as simple as seeking input from underrepresented minority employees about what would be helpful to improve financial wellness,” he said.

Aside from implementing plan benefits that could alleviate debt, such as student loan repayment programs, and offering health savings accounts (HSAs), which can help workers pay for medical costs and avoid medical debt, T. Rowe Price recommends plan sponsors incorporate retirement plan designs that prioritize participation, including automatic enrollment, auto-escalation, vesting or incentives such as employer matches. Offering emergency savings, consumer debt management financing and transactional processing can also help employees overcome barriers to saving, the firm adds.

The “Retirement Savings and Spending” survey was conducted by NMG Consulting on behalf of T. Rowe Price and included a sample of 3,420 401(k) retirement plan participants, 631 participants not eligible to participate in a 401(k) plan, and 1,007 retirees with a rollover individual retirement account (IRA) or left-in-plan balance.