A recent ERISA Advisory Council report on gaps in retirement savings based on race, ethnicity and gender contains recommendations for addressing the significant disparities in retirement security for women and people of color. The recommendations would help employers take a more active role in providing financial wellness education and implementing plan features to mitigate some of these disparities. However, the council concluded that larger systemic issues outside the authority of the Department of Labor (DOL) also contribute to retirement savings gaps and warrant broader policy discussions.
Although the council acknowledged the current limitations of the US retirement system — calling it “fragmented” — the council largely limited its recommendations to actions within DOL’s authority. Several recommendations aim to increase participation and savings rates for women and people of color in employer-sponsored defined contribution (DC) plans by mitigating certain factors that disproportionally affect those groups.
The council acknowledged that “meaningful” investment education could help improve employees’ financial well-being, including women and people of color. However, witnesses indicated that although employers want to provide such education, they hesitate to do so because of the risk of lawsuits. The council recommended that DOL update Interpretive Bulletin 96-1 to more clearly delineate between nonfiduciary investment education and fiduciary investment advice and to promote education on financial wellness topics beyond retirement savings.
Several of the council’s recommendations would clarify that plan fiduciaries may consider diversity, equity and inclusion (DE&I) factors without violating their ERISA duties. However, the council’s report doesn’t address potential implications of federal nondiscrimination laws.
Many of the council’s recommendations address plan design features to increase participation and savings rates, although some council members noted implementing certain recommendations might require legislative changes. Provisions in the Setting Every Community Up for Retirement Enhancement (SECURE) Act (Div. O of Pub. L. No. 116-94) and the House-passed bipartisan “SECURE 2.0” bill (HR 2954) address some (but not all) of these areas.
Because women are more likely to take time away from the workforce for caregiving, the council recommended that DOL encourage employers to provide up to 12 weeks of continuous service credit for absences related to family caregiving. The report further noted that inequitable division of retirement assets at divorce also contributes to gaps in retirement savings for women. Only a very small percentage of participants have qualified domestic relations orders (QDROs), which split retirement plan benefits in case of divorce. The council urged DOL to develop standard QDRO templates to reduce the cost of interacting with the court system and provide education about QDROs to state bars and family court officials. The council also recommended that DOL update existing guidance to give a spouse more access to information about a participant’s retirement benefits, though some council members suggested this recommendation could violate privacy laws.
Half of the private workforce in the US currently lacks access to employer-sponsored retirement plans, with women and people of color disproportionally affected. The council advocated that DOL encourage more employers to offer retirement plans by promoting arrangements like multiple-employer plans (MEPs) — including pooled employer plans (PEPs) — and state-sponsored ERISA DC plans.
The fragmentation of the US retirement system presents broader challenges, with six federal agencies responsible for different aspects of public and private retirement savings. The council recommended that these agencies coordinate through an interagency working group on retirement security. This group’s responsibilities could include conducting research and collecting data on retirement security for underserved and marginalized populations. In addition, the council encouraged DOL to issue a periodic report on overall retirement security in the US similar to the European Union’s triennial Pension adequacy report. The council also urged DOL to conduct more education and outreach on financial literacy topics for employers, advocacy groups, and underserved communities and to provide financial education as part of the agency’s workforce training programs.