Retirement Wellness

Practical Steps for Addressing Racial Inequality in Retirement Plans

June 29 2022
Transcript

Hello. One of the best ways to improve outcomes for retirement plans is through automatic enrollment and re-enrollment. But have you ever considered these features as a tool for addressing racial and socio-economic inequality?

The racial and ethnic wealth gap is a growing problem in America. According to our research, it shows up in the area of retirement savings too.

Black and Hispanic workers, remain behind their white peers when it comes to plan participation and retirement savings. Not surprisingly, young workers tend to lag older workers, and lower earning workers lag higher-earning workers. We also know – according to research coming out of MIT – that the lowest paid, and youngest participants, tend to get the greatest financial benefit from auto enrollment.

What does that mean for us? Well, in a society and industry where the wealth gap is widening, engaging those who are least likely to save for retirement can have a significant effect on their futures. In other words, automatic enrollment can be used as a tool for closing the racial and socio-economic wealth gap within our industry and country.

How does re-enrollment fit into the mix, and why is it so important? According to our research, one in three retirement plan participants surveyed either stopped saving or reduced their deferrals at some point before retirement. So, if you think of saving for retirement as a marathon, automatic enrollment does a great job of getting people into the race, but often falls short of helping them finish it.

In contrast, re-enrollment is very flexible and can be used to engage workers who have chosen not to participate, or could benefit from a re-setting their savings rate or allocations. Additionally, re-enrollment can be used both tactically and strategically to affect specific groups of employees – like non-participants, or even the whole plan.

This is just a sample of very extensive research we’ve done on this issue. For more, please visit our website or contact your T. Rowe Price consultant. Thank you.

Key Insights

  • Automatic enrollment and re-enrollment can be used as a tool for closing the racial and socio-economic wealth gap within our industry.
  • According to our research, Black and Hispanic workers, remain behind their white peers when it comes to plan participation and retirement savings. Not surprisingly, young workers tend to lag older workers, and lower earning workers lag higher-earning workers.1 Research also indicates that the lowest paid, and youngest participants, tend to get the greatest financial benefit from auto enrollment.
  • Furthermore, our research indicates that one in three retirement plan participants surveyed either stopped saving or reduced their deferrals at some point before retirement.2 So, if you think of saving for retirement as a marathon, automatic enrollment does a great job of getting people into the race, re-enrollment can help them finish it.

Sources:

Retirement Savings & Spending Study. T. Rowe Price, 2021.

Closing the Retirement Savings Gap for Minorities. Dr. Sudipto Banerjee. 2022. 

Additional Source: 

Default Options and Retirement Saving Dynamics. Dr. Taha Choukhmane, 2019.

Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of February 2022 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor.

Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy. Actual future outcomes may differ materially from any forward-looking statements made.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal.

T. Rowe Price Investment Services, Inc., and T. Rowe Price Associates, Inc., investment advisor.

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