Data and Research August 30, 2021

Supporting Black and Latinx Workers With Income and Retirement Needs

Employers can take steps to alleviate financial concerns for underrepresented employees and make it easier for them to save in a retirement plan.

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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.

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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.

Compliance August 30, 2021

New SEC Adviser Says Consumer Protection is Top Priority

Barbara Roper, who is known for her extensive work on financial services consumer protections as a leader of the Consumer Federation of America, is becoming a senior adviser to the leadership of the U.S. Securities and Exchange Commission.

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Last week, the U.S. Securities and Exchange Commission (SEC) announced it has appointed Barbara Roper to the role of senior adviser to SEC Chairman Gary Gensler.

In announcing her transition, the SEC says Roper will focus on issues relating to retail investor protection, including policy development and the oversight and examination of broker/dealers (B/Ds) and investment advisers. Such issues have come to define the efforts of the SEC—as well as the U.S. Department of Labor (DOL)—under the Biden administration.

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Roper heads to the SEC after a 35-year career at the Consumer Federation of America (CFA). In a statement to PLANSPONSOR, CFA Executive Director Jack Gillis says Roper has “likely been one of the most influential and effective protectors of the American investor in recent history.

“CFA is so proud of her efforts, as well as her selection to carry on her work at the SEC in support of SEC Chairman Gensler,” Gillis continues. “Her efforts to institutionalize a fiduciary responsibility in the financial marketplace is legendary and has served as the benchmark for those interested in a healthy, responsible and fair financial marketplace.”

Given the high praise from the head of the CFA, which aims to protect the interests of consumers across all sectors of the U.S. economy, it is reasonable to expect Roper will push for stronger rules and regulations during her forthcoming SEC tenure. Indeed, in a statement confirming Roper’s move, Gensler calls Roper “a champion for investors [who] will provide invaluable counsel on behalf of the American public.”

Gensler’s statement notes that he and Roper have substantial prior experience collaborating on ambitious, game-changing financial market policies. Most notably, both worked on the Sarbanes-Oxley Act and the major market reforms of the Dodd-Frank Act.

“I’m excited to join the SEC and Gensler’s leadership team,” Roper says of her move to the SEC. “I’ve dedicated my career to ensuring that our capital markets work for the average investor. With investor protection at the core of the SEC’s mission, I’m looking forward to bringing that same focus on the needs of individual investors to my work for the SEC.”

The SEC says that during her time at the CFA, Roper was recognized as a spokeswoman on investor protection issues, particularly the standards that apply to investment professionals whom investors rely on for advice and recommendations. For example, last year, Roper filed on behalf of the CFA a comment letter that sharply criticized the updated DOL fiduciary rule framework put in place under then-President Donald Trump and then-SEC Chairman Jay Clayton.

“This is a regulatory package being rushed through by the Department of Labor in the guise of improving retirement investment advice for workers and retirees,” Roper wrote. “It would instead benefit powerful financial firms at retirement savers’ expense. This regulatory package is a multibillion-dollar transfer of wealth from the retirement accounts of American working families to the wealthiest, most powerful financial firms. Instead of strengthening protections for workers and retirees, it makes it easier for financial firms to profit unfairly at their expense.”

Roper’s argument was that the DOL regulatory package consists of two components “which work together to make it easier for financial firms to evade any fiduciary obligation” and to weaken the fiduciary standard when it does apply.

Roper wrote that she thought the new package included “a final rule reinstating a 1975 regulatory definition of fiduciary investment advice that it is so riddled with loopholes that it enables firms to decide for themselves when and if they want to be held to a fiduciary standard, as well as a proposed new exemption, modeled on the Securities and Exchange Commission’s weak, non-fiduciary Regulation Best Interest [Reg BI], which would enable firms providing retirement investment advice to engage in a wide range of conflicts of interest without adequate safeguards to prevent those conflicts from tainting their advice.”

Though her comments broadly criticized the DOL’s decisionmaking, Roper did have a few positive points to make.

“Saying that rollovers in the context of an ongoing relationship constitute fiduciary investment advice is a small step in the right direction, but it is a far cry from unequivocally covering all rollovers in the definition, as the 2016 rule would have done,” she writes. “Similarly, saying that firms may need to do more than stick a disclaimer in six-point type in a disclosure document to avoid any fiduciary obligations is appropriate, as far as it goes, but it would still appear to leave firms plenty of room to come up with a way to avoid those obligations, even in circumstances when the retirement saver will rely on those recommendations as a primary basis for their investment decision.”

Beyond matters focused on Reg BI and the fiduciary duty of investment advisers, Roper might also contribute to the SEC’s revisiting of proxy voting rule changes made under the prior administration. Other potential focus areas, as denoted by the SEC’s 2021 examination priorities list, include financial services industry cybersecurity, operational resiliency, and the ongoing proliferation and development of financial technology innovations, including digital assets.

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