Human Resources
Thought Leadership

Ask Our Expert: Retirement Savings Disparities

Barb HoggWe've asked Barb Hogg, Aon Hewitt's retirement communication leader, to answer a few questions about a recent retirement study conducted by Hewitt. If you'd like to ask a question about retirement, or about any other pressing human resources challenge you might be facing, e-mail us. We'll share responses to select questions on a regular basis.

Hewitt Associates — along with Ariel Education Initiative, The Rockefeller Foundation, and a diverse set of partners — released findings from a groundbreaking study titled 401(k) Plans in Living Color: A Study of 401(k) Savings Disparities Across Racial and Ethnic Groups. The study examined 401(k) information for nearly 3 million employees across 57 large, primarily FORTUNE 500, companies. It looked at racial and ethnic differences in U.S. employees' 401(k) saving and investing behaviors in the United States and focused on five key factors of 401(k) saving and investing behavior: participation rates, contribution rates, equity investments, loans, and hardship withdrawals.

The study has generated significant buzz, and as a result, we've received a few questions, which Barb Hogg addresses below.

Question: Why did Aon Hewitt want to do this study? How is it relevant to Aon Hewitt's business?

Answer: Hewitt has performed research in the area of 401(k) behavior for many years. And, as more employees look to the 401(k) plan as a primary source of retirement income, these behaviors become more important. We've also been very focused on diversity and inclusion and how that relates to HR efforts. This study blends these two items. Most Americans have far less than what they'll need for retirement, and they aren't saving and investing sufficiently to make up for the shortfall. Results of the study show that this challenge is magnified for some segments of the population, indicating a disturbing disparity. We think this is an important issue for all of corporate America and its employees and has profound implications for the well-being and retirement readiness of all American families.

Question: How did the financial turmoil of the past year affect the results?

Answer: We studied employee data from 2007, so it preceded the turmoil that has happened since then. While the volatility of the economy has had a significant impact on the retirement savings of many Americans, we actually are glad to have looked at data before that influence — because it provides more of a steady state. And the factors that influence an employee's ability to recover from the losses he or she might have incurred in recent months are those same factors we studied — participation, contributions, and investment allocations. In many ways, the findings are all the more relevant because of the financial turmoil.

Question: What should employers do with this information?

Answer: The first step is awareness. Employers must understand the situation. They can do what we did here — collect data on account balances, contribution rates, equity exposure, loans, and hardship withdrawals and look at it through a diversity lens. And they can take it a step further by matching it up with qualitative data through surveys and focus groups.

The next step, of course, is taking action. Plan design is an area that can make a big difference. We see the movement toward automatic enrollment as helping all employees, especially when there's a one-time sweep of current nonparticipating workers. Employers could also set the default contribution rate for employees enrolled in a 401(k) plan so that they get the full company match or automatically increase them over time to at least the full match threshold.

Beyond this, employers can do more to engage employees in retirement savings. Look at and fine-tune communication initiatives, as well as the messages and approach used to encourage improved saving behaviors. Promote retirement planning with a strong sensitivity to audience perspectives, and provide retirement-planning tools and resources to employees. Education, communication, call centers, investment advice, workshops, easy-to-read materials, and online tools are all proven ways to increase plan participation and improve plan usage. Employers can play a significant role in providing this education to individuals. By doing so, employees will be better equipped to make smart retirement-planning choices.

Learn more about the 401(k) study.

About Our Expert
Barb is a principal in Aon Hewitt's Lincolnshire, Illinois headquarters. She leads Aon Hewitt's retirement communication efforts with a broad focus ranging from detailed plan design to changing employee behavior. Barb also helps lead Aon Hewitt's retirement research efforts looking at trends in retirement program design and deep analysis of employee behavior based on Aon Hewitt's data of millions of plan participants. She speaks at several conferences a year and is a co-author of the Cash Balance Plan Answer Book. Barb is a Fellow of the Society of Actuaries. She graduated with a bachelor of arts degree in mathematics and economics from the University of Iowa and has a master of science degree in statistics from Northwestern University. Barb has more than 20 years of experience working in human resources.