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Good Plan Design Can Help Women Achieve Secure Retirement

With statistics showing women having a longer life expectancy and a significant retirement savings gap compared to men, incorporating good DC plan design and financial wellness programs can help women establish a path for a secure retirement, panelists suggested at a recent policy forum.

“The Gender Story: A Symposium on Retirement Solutions for Women,” a Sept. 19 forum sponsored by Women’s Institute for a Secure Retirement (WISER), featured discussions on a host of issues pertaining to financial and retirement savings trends of women.

Among the topics were why women face a retirement savings gap, retirement literacy and opportunities for helping women and public policy solutions, as well as formal and informal steps that women can take to help establish a retirement savings strategy.

Gender Gap

While women have made great strides over the last decade and currently make up 47% of the workforce, they still have retirement savings balances that are about one third lower than their male counterparts and retirement income that is 42% lower, explained Janice Co of Prudential Retirement. She noted that there are a couple of factors that contribute to this, including that women earn about 79% of their male counterparts, tend to leave the workforce earlier than men, and end up being uncompensated caregivers.

Why is this important? One reason is that women on average live about five years longer than men and will need more retirement savings to make ends meet, Co noted. She highlighted a recent Prudential survey of pre-retirees that found that 25% of women indicated that they don’t think they will ever be able to retire, compared to 14% of men.

What can plan sponsors do to help employees achieve secure retirements? Co suggests that good plan design can help women overcome behavioral obstacles — such as procrastination and the feeling of not enough time to focus on saving — that get in way of good savings strategies. Features such as auto enrollment, auto escalation and asset allocation tools are all critically important approaches that can help overcome these obstacles, she suggested.

Catherine Collinson with Transamerica Center for Retirement Studies noted that one thing they consistently see in their research is the importance of financial literacy and making it easier to understand retirement terminology instead of industry jargon. With many experiencing a lack of confidence in discussing retirement savings issues, Collinson noted that a good starting point for both men and women is to take advantage of employer resources, such as financial wellness programs and informal employee groups that get together to have conversations about money and savings.

One dynamic that is putting pressure on retirement security, particularly with younger generations, is that more-educated women and men are getting married and having families later in life, which leaves less time to save for retirement, explained Lena Rizkallah with JP Morgan. In setting financial priorities, Rizkallah says the advice she gives is to focus on what you can control, such as maximizing savings, understanding and managing spending, and adhering to a disciplined approach to investing. She also suggests using a goals-based wealth management approach to develop short, medium and long-term goals so that you are saving enough to accomplish all of your goals and not just the ones that occur first.

Opportunities for Change

Addressing the topic of coverage, Melissa Kahn with State Street Global Advisors (SSgA) noted that while there is an ongoing debate over whether the country faces a retirement savings crisis, EBRI statistics show that there is a $4.13 trillion retirement savings gap and that one third of the workforce does not have access to a retirement plan.

Kahn believes these are critical statistics, particularly for women, many of whom work for small businesses that do not offer plans. In addition, she noted that 29% of small businesses in 2015 were owned by women, which is up from 26% in 1997. Perhaps more importantly, she noted that the growth rate since 2007 for women-owned business was 68%, compared to 47% for all businesses.

To help address this shortfall in coverage, Kahn explained that SSgA developed a public policy proposal by looking at what other countries were doing. Incorporating elements of the U.K. system as a basis for a proposal, Kahn noted that SSgA developed a four-point policy proposal that would, among other things, require all employers to auto enroll and auto escalate their employees in a DC plan. With an eye on not wanting to hurt small business, she noted that the proposal incorporates various features to offset the cost, such as providing tax credits to cover administrative costs. In addition, she noted there would be no employer contribution requirement, but employers would also receive tax credits for matching contributions.

Kahn further explained how the SSgA plan proposes to end barriers to open MEPs by eliminating the nexus requirement. She emphasized how fiduciary responsibility would be shifted from the employer and placed with the MEP provider. She noted that the open MEP proposal has been introduced in both the House and Senate, and remains hopeful it will be enacted.

Toni Brown of the Capital Group also picked up on the theme of auto features, suggesting that plans should start with a higher auto-enrollment percentage than 3%, and incorporate auto escalation in order to get people saving in the 10%-to-15% range. With numerous statistics showing a retirement savings gap, Brown contended that it’s important to get people where they need to be at in terms of their savings level. Plan sponsors can help them get there, he asserted.

Finally, Brown suggested that plans should consider an investment reenrollment that sweeps everyone in to a QDIA, and continue doing so every year. In addition, she emphasized the importance of helping with the decumulation phase of retirement, noting that lifetime income options are important features for plans, and they do not necessarily have to be annuity options. Brown noted that these features can go a long way in helping both men and women create secure retirements.