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Author: Don Obrien

Closing Racial and Ethnic Savings Gaps with Financial Wellness


Employers have an opportunity to promote diversity, equity and inclusion in defined contribution plans and help address broader social inequality, according to a new white paper from T. Rowe Price.   

The firm released a series of papers that dive deeper into findings from its sixth annual Retirement Savings and Spending survey, which focused on the financial attitudes and behaviors of 401(k) savers and retirees. 

In Financial Wellness Through the Lens of Race and Ethnicity, Joshua Dietch, Vice President of Retirement Thought Leadership at T. Rowe Price, observes that 401(k) plans have benefited millions of people, but the benefits have not been shared equally, as social inequality found in the broader labor market carries through into retirement savings and overall financial wellness.

Dietch contends that DC plans are one of the few places where access to advice, guidance and education in support of lifetime financial goals is supported equally. This, he notes, provides plan sponsors with an opportunity to directly address plan participation and savings gaps through the availability of financial wellness tools and services, and better plan design.

“The DC plan sits at a unique crossroads. It may be the sole place where workers of all races and ethnicities have access to financial education and tools without regard to their income or wealth. In other words, if you have access to a plan, it is a democratizing force for good. Still, that is not good enough,” writes Dietch. 

The Differences

Among those who have access to 401(k)s, 81% of the heads of white households participate in a DC plan, compared with 70% of black and 63% of Hispanic heads of households, the paper notes, citing data from EBRI. Moreover, T. Rowe Price’s research found that black and Hispanic 401(k) savings rates were lower compared to their white counterparts. The median deferral rates were 5% and 8% for black and Hispanic participants, respectively, compared to 9% for white participants. 

Meanwhile, 55% of survey respondents believe—despite inadequate levels of saving—they are saving enough to enjoy a comfortable retirement. The remaining 45% are either aware they are not saving enough or are unsure if their retirement plan contributions are sufficient, the paper notes.

Additionally, black and Hispanic respondents were more likely to cite having student loan, medical and other types of debt, further impairing their ability to save for retirement. The data also suggest that challenges to saving for retirement may vary between different races and ethnicities and this has implications for employers, financial professionals, and retirement recordkeepers, the paper observes. For example, when asked, 20% of white, 26% of black, and 30% of Hispanic respondents reported having difficulty in paying required monthly bills.

“Unfortunately, our research suggests that the combination of inadequate savings and greater amounts of debt will result in many not being able to retire on their own financial terms and may require a reduced standard of living in retirement. Still, these are challenges that employers, financial professionals, and recordkeepers are well positioned to address,” says Dietch. 

The Solutions

The first step for employers may be as simple as seeking input from underrepresented minority employees about what would be helpful to improve financial wellness. According to the paper, solutions start with correctly diagnosing the challenges and finding the right mix of strategies that employers and financial professionals, in partnership with a recordkeeper, can do to help these retirement savers become financially healthy. This includes helping them become more adept at managing day-to-day expenses, saving for both short- and long-term financial goals—such as emergency and retirement savings—and managing debt, the paper observes. 

Additionally, employers could also incorporate plan designs that prioritize participation, such as automatic enrollment, auto increase, or using incentives, such as matching employer contributions to increase contribution rates.

Other examples of actions that plan sponsors can take include:

  • implementing targeted, personalized communications to engage nonparticipants and participants to take actions based on factors known about them;  
  • offering automated services (e.g., emergency savings, consumer debt management, student loan repayment assistance, financing and transactional processing);
  • promoting the tax benefits of saving in 401(k)s and the availability of additional incentives, such as the Savers Credit; and
  • offering education and tools that build financial capability and offer measurement so that participants can see the effect of progress. 



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