401(k) Specialist Issue 1 - 2017 - 36

401(k) PROVIDER PERSPECTIVE
How to Bridge the Minority
401(k) Participation Gap
By Tom Hawkins
UNDER-PARTICIPATION BY MINORITIES in America's 401(k)
system represents a significant economic disparity that requires
creative, private-sector solutions.
Auto portability-an emerging plan feature that automatically
moves small balance accounts forward when participants change
jobs-could play a critical role in helping to bridge the participation
gap.
Consider the following statistics:
* According to U.S. Census Bureau figures, in
2015 minorities represented 32.28 percent
of the general population of the United
States.
* In contrast, a 2009 Employee Benefits Research
Institute (EBRI) study indicated that
minorities account for only 24.9 percent of
total 401(k) participants.
Clearly, the very population segments that
would benefit the most from supplemental
retirement income are not participating. To
make matters worse, the participation gap
could widen. The U.S. Census Bureau projects
that minorities will become a collective majority
by 2045, reaching 50.72 percent of the
general population.
In order to provide retirement security for
all segments of the American population, changes will be necessary.
Two
Paths to Bridge the 401(k) Participation Gap
At its simplest, there are two basic paths to increasing minority
participation in 401(k) plans:
* Increase minority access to 401(k) plans in the workplace.
* Where plans are offered, increase minority participation levels.
Increasing access to 401(k) plans is a complex undertaking. In
2016, this was the key focus of the Bipartisan Policy Center's Commission
on Retirement Security and Personal Savings, when the
BPC offered 16 proposals that addressed 6 key retirement security
challenges - with the No. 1 challenge identified as Americans'
inability to access workplace retirement security plans.
Where plans are offered, creating conditions that promote increased
minority plan participation is another, vital path to parity. Here,
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ISSUE 1 2017 | 401kSpecialistmag.com
increasing the uptake of auto enrollment
seems to be a sure-fire solution.
In 2011, the Society for Human
Resource Management (SHRM) cited research
by Vanguard Investments that
auto enrollment promoted an increase in
participation, but this increase was particularly
high for African-American and Hispanic
workers. When
auto enrollment was offered, participation
rates improved from 57 percent to 94 percent
for African-American workers, and from 67
percent to 95 percent for Hispanic workers.
The dilemma with auto enrollment is that
the feature has unintended consequences,
including an explosion in the number of
small-balance accounts. These problems are
particularly troublesome in higher-turnover
industries that are typically over-represented
by minority workers. Citing high costs, these
plan sponsors have naturally been reluctant
to add an auto enrollment feature. Not
surprisingly, the growth of auto enrollment
has slowed dramatically in the last 3 years.
Auto portability is specifically designed
to address the problem of small accounts
(<$5,000) that are subject to mandatory
distributions. Using electronic records matching to locate a separated
participant's active account at their current employer, auto
portability will automatically move these balances forward, solving
the small account problem for plan sponsors.
With the small account problem solved, employers in industries
that experience high turnover will be much more likely to activate
an auto enrollment feature, confident in the knowledge that they
won't be awash in a sea of small accounts. Increased auto enrollment
will, in turn, disproportionately increase minority participation
levels in these plans, while simultaneously preserving minority
participants' savings for retirement.
Clearly, auto portability can play a vital role in resolving the
minority 401(k) plan participation gap.
Tom Hawkins is vice president of sales and marketing with Retirement Clearinghouse,
and oversees all key operational aspects of this area, including
RCH's web presence, digital marketing and plan sponsor proposals.
" TO MAKE
MATTERS
WORSE, THE
PARTICIPATION
GAP COULD
WIDEN. "
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401(k) Specialist Issue 1 - 2017

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