Retirement Planning for Diverse Populations

As retirement plan advisers look to win and keep clients, they often need to show their ability to design a plan that meets the specific needs of a varied participant pool.

But doing so in a workforce that is increasingly disparate and diverse might mean going beyond the “average” participant, says a group of advisers who focus on diversity, equity and inclusion in plan creation and participant outcomes.

Plan offerings need to be “more accessible and inclusive because the reality is that it’s not just retirement that people need to address to be financially healthy,” says Liz Aidoo, financial planner and manager of DEI and Spanish Language Services at Francis LLC.

Aidoo, who works directly with participants, says she often sees people with issues that can complicate a retirement savings picture. Some have “mountains of high interest debt” they must address. Others are sending money to family members abroad. Still others may be earning in the U.S., but then moving abroad or to a home country with a different pension system.

“It’s not just about the averages that we lump people in together to say you need to save 10% or 15% for retirement for this to work,” she says.

Scott Matheson, managing director of client solutions at CAPTRUST and member of the executive committee, agrees with the need for specific and detailed analysis before designing an employee retirement plan and benefits program.

“The problem with averages with humans is that if you solve for the average then you are solving for nobody,” he says. “It’s a mythical person that doesn’t exist … we need to get comfortable with isolating the data that you are really trying to solve; there has been an evolutionary change that is happening in this regard, with plan sponsors getting smarter about [their participant pools].”

Part of that change, he notes, is human resource leaders playing a more engaged and influential role in plan considerations and design. That is happening, he notes, along with a shift in employee sentiment by which they are expecting more from their employers by way of offerings, resources and financial guidance.

“A lot of advisers are leaning in and recordkeepers are leaning in who have a lot of data and analytic powers to say, ‘let’s look at your demographics a little different,” he says, noting adjustments that can be made for population pools.

Some of this type of analysis, however, may depend on what is available from recordkeepers and other vendors, says Kezia Charles, client solutions leader, southeast, for WTW. That’s why it can also be helpful to engage in regular employer surveying and listening, including connecting with employer resource groups.

“We can’t overstate the importance of hearing from employees on whether their needs are being met,” says Charles, who works with employers on setting up such programs.

Creative Approaches

She notes the importance for advisers and sponsors to not just think about long-term saving and investing, but how to help employees with the short-term needs that can cut into such planning.

“Some people may not be able to tie up money until they’re of retirement age,” she says. “It’s important to offer things like emergency savings and vehicles outside of the 401(k) to allow people to access funds when they need them.”

Once an adviser and client have a sense of the participant pool, Francis’ Aidoo says advisers can make decisions that fit those needs. In one case, Aidoo’s team worked with a plan sponsor who had a bifurcated compensation scheme. In that case, they decided to offer an employer match for every dollar up to $1,000.

“That didn’t favor the higher compensated individuals as it let everyone get the same match,” she says.

Amber Brestowski, head of institutional advice and client experience at Vanguard, agreed that a dollar cap to an employer match may be able to help with equity in the plan—as opposed to a 6% or so match that may disadvantage those who can’t save up to that level.

Another potential option Brestowski notes is getting more personal with savings default rates based on age for workers who often switch jobs.

“As you switch jobs a lot of the plan design resets back to an initial auto-enrollment contribution rate,” she notes. “Default rate savings are not one size fits all.”

Vanguard, she says, is digging deeper into the data and solutions for a more diverse workforce to move toward a “smarter, more personalized approach to savings and moving away from this one size fits all approach.”

Money Matters

CAPTRUST’s Matheson, who spearheaded and chairs a DEI council for the firm, says that advisory firms must be able to help clients with plan design and concepts to meet the needs of more diverse groups if they are to remain relevant into the future.

“People relate to money differently depending on how they walk the planet regardless of job,” he says. “Fast forward twenty years, if we’re not working to meet their needs, we’ll be irrelevant.”

When it comes to plan solutions, he points to evolutions in plan design and offerings that can be discussed with plan sponsors as options. Those include supplemental saving programs that can ensure participants have a safety net that doesn’t require them to tap into 401(k) savings. It might also be making sure people are immediately eligible for plans with auto enrollment so they don’t miss the window of saving.

More personalized results can be bolstered, notes WTW’s Charles, by offering culturally relevant financial literacy and education tools. That goes from the materials being distributed to the coaches and financial planners made available through an employer program. This can be a challenge, she admits, due to some of the lack of diversity in the financial sector. However, she notes, “things are getting better.”

“The better organizations have a more culturally diverse group and people of color to meet the needs of the participants,” she says. “Sometimes it’s just a matter of letting people know what is available to them from the employer and how to take advantage of it. So listening to employees, and then communicating with them in the right way is a key component [of serving a diverse pool of participants].”