When we talk with corporate HR leaders in 2024, there are two challenges that inevitably make it into almost every one of those conversations:
Part of what makes those two an interesting combination is that although it isn't done often, the two of them can be addressed in tandem. We'll explore how benefit advisers can help them do just that, but first let's look at the more common current situation.
Frankly, we rarely see employers with
Let's start by considering what having a successful DEI initiative means. How do companies measure the success of their DEI initiatives?
Most measure lots of things, but they tend to examine what's easy to measure. So, we see year-over-year diversity metrics. Example: What percentage of the board or company officers are women or people of color? These are what we might refer to as current metrics.
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Financial wellness, on the other hand, is both a current and long-term metric. Someone who is truly financially well is both currently in good financial shape and well-prepared financially for the future. We rarely see that measured across the traditionally underserved populations. Perhaps that's because those doing the measurement don't often like the answers.
Not measuring financial wellness, however – and more specifically not measuring it separately by diverse cohorts – does not mean financial wellness is not part of a company's DEI initiative. It's far more likely that they have two concerns that have not yet been linked cohesively.
In fact, there are a substantial number of companies that view financial wellness of their employees as critically important and are deeply concerned about whether they are serving those traditionally underserved populations as well as they might. They simply might not have become comfortable with a way of measuring the financial wellness of different cohorts within their own workforce.
Let's think about how they might measure that financial wellness. Perhaps surprisingly, it might be easier to measure long-term wellness than it is short-term wellness.
In the short term, employers don't tend to know whether their employees are easily or not so easily making ends meet. But they can have a better understanding in the long run. What an employer can and should measure as part of a DEI initiative is projected retirement outcomes.
In other words, how well are various parts of their employee population making use of retirement benefits so that when they are combined with Social Security benefits, they will have financial independence in retirement? Sadly, our research shows that traditionally underserved populations tend to fall far short of that goal.
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Is that their collective fault or their employer's? As usual, some portion of the blame likely belongs in each camp. But some basic frameworks are far more conducive to solving this problem than others.
Let's start with the most common corporate retirement program in 2024: the matching 401(k) plan. In order to receive a benefit from their employer, employees need to contribute some of their own money. Most data shows that this is actually not a program that is consistent with a DEI program. Why not? Before employees can contribute their own money, they must have enough income to do so. But the traditionally underserved groups that are targeted in DEI initiatives tend to be lower-paid, and therefore, have less ability to save.
In fact, many who are saving in 401(k) plans appear to be doing so by accumulating consumer debt to finance their "401(k) habit." That's just not a sustainable solution. On the other hand, retirement benefits that people get simply by being an employee are more consistent with DEI initiatives. They don't require anyone as an employee to have discretionary income to benefit. In other words, they are somewhat equal for diverse populations.
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If they are somewhat equal, are they then equitable? If your client is providing truly equitable benefits, it can be measured by seeing that two similarly situated employees who happen to be classified differently demographically have equitable outcomes. We can forecast the benefits that they will have in retirement and see that both are on track for financial independence in retirement.
The best programs to do that combine defined benefit (DB) plans with defined contribution (DC) savings plans like 401(k) or 403(b). Why both? The DB plan can provide a guaranteed lifetime income benefit that serves as a core financial foundation. In doing so, it is designed to provide a sufficient amount that not only does in help in financial wellness, but the security it provides also is critical to great mental health.
When a DC savings plan operates alongside the DB plan, each employee can personalize their usage of that plan as they need to balance between current financial wellness and future financial wellness. It's a way to provide equitable outcomes for a diverse workforce.
