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Closing the 401(k) gap for women

Women face unique challenges in saving for retirement. Solutions are starting to emerge, but there’s more work to be done.

Women represent more than half of U.S. personal wealth — and that percentage is expected to grow over time. Yet women also face unique challenges in saving for retirement, such as ongoing pay inequity and longer life spans than men. II sat down with Sue Walton, senior vice president and senior retirement strategist at Capital Group®, to discuss solutions that plan sponsors and policy makers are working on that can help women reach a more secure retirement.

II: The 401(k) system celebrated its 40thbirthday last year. What grade would you give it overall, and more specifically, what grade would you give it for women?

Sue Walton: If you look at the 401(k) system and how well it’s done for everyone, I’d give it a C+. But if you think that’s a low grade, you’re going to be disappointed when I tell you we’re probably ranking somewhere in the C- range as it relates to women. The success of the 401(k) system is reliant on participation, level of savings, investment results and the ability to spend those savings throughout retirement. Women face a number of unique challenges, such as earning less than men — even in the highest-paid professions, such as engineering, law and medicine, women make only 92% of what men make. Women also take time out of the workforce to care for children or aging parents, and when they do return to the workforce, some come back on a part-time basis. So they wind up earning less, and saving less. Finally, women tend to live longer than men. As a result, they are at greater risk of outliving their savings and face steeper long-term care costs.

II: That’s a sobering diagnosis. How should plan sponsors tackle the problem?

SW: From a plan design perspective, one area for sponsors to consider is expanding plan eligibility, based on criteria such as workers' hours, their tenure, and different salary levels. Legislation introduced in the Senate and House this year that addresses the gender gap in retirement takes into account some of these factors. For example, one provision would change the minimum participation standards for long-term, part-time workers, most of whom are women, to expand access to retirement plans.

II: One challenge many women face is that they simply don’t have access to a retirement plan. What solutions are available to address that challenge?

SW: There are at least a couple of potential solutions. For women who work for small employers that don’t sponsor plans, state-sponsored IRAs are one way to get started saving for retirement. The state-sponsored IRAs are designed to be offered through small employers that don’t otherwise offer retirement plans. California and Oregon are currently leading the way and showing success, and about half the states are also considering these plans. Employers could also consider multiple-employer plans (MEPs), which would allow them to pool their resources with other employers to offer a 401(k). On that front, the U.S. Department of Labor proposed rules last year that would make it easier for unrelated employers to form MEPs.

II: There has been a perception that women aren’t as involved in their retirement investing as are men. Is that myth or reality?

SW: Definitely a myth. Capital Group conducted a survey a couple years ago in which we found that more than half of women said they made meaningful contributions to their household income. Many women also know what’s in their portfolios, and ask meaningful questions about their investments. And according to the U.S. Census Bureau, nearly 29% of working women now out-earn their working husbands. Another misperception is that women aren’t confident in making investment decisions. In reality, most women are plenty confident. In fact, some academic studies suggest that men tend to be overconfident in their investment decision-making relative to women, which can result in excessive trading and therefore lower net returns.

II: So it sounds like women have quite a bit of potential investing power. Are there differences between how men and women tend to view their investments?

SW: Of course, men and women aren’t monolithic groups. But overall, we do see differences. First, let me point out that 40% of women today make their own investment decisions or share responsibility for doing so. And their investment decision-making tends to be more impact-oriented than men’s. For example, many women may look at whether their investments have the potential to promote health and wellness, community development or improve economic opportunities for women and minority individuals. So for many women, investments shouldn’t just deliver positive returns over time — which we all agree upon — but also have a broader social impact.

II: So where are we seeing that kind of decision-making in the marketplace?

SW: These conversations are happening across many investment committees, both from the plan sponsor perspective as well as among some of the institutional consultants. So as these committees are getting together and considering the investment lineup as well as their investment partners, this is a key question that’s being asked and evaluated: namely, to what extent does the investment manager consider environmental, social and governance issues in their investment process?

II: How are employers helping women tackle their unique concerns when saving for retirement?

SW: One significant area where companies are beginning to make progress is in providing wellness plans that incorporate financial education that’s tailored for women — to address their concerns, so they feel secure in having enough resources to provide for themselves and those they care about, now and in retirement. That bodes well for women’s futures, and for everyone’s.


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