Diversity, equity and inclusion is top of mind for many plan sponsors these days. And, while issues around retirement and pensions likely aren’t the key focus for employers looking to tackle DEI issues, they should be.
This March, the Organisation for Economic Co-operation and Development released a study that found the pension gender gap, or the difference in retirement income that men and women receive, averages 26 per cent across OECD countries. More recently, the Canadian National Railway Co. updated its pension policies to allow same-sex partners of deceased employees who retired prior to the policy change to also collect survivor benefits following outcry that a widower was initially denied pension benefits from CN due to an outdated rule regarding same-sex couples. These two examples show issues around retirement and pensions often intersect with DEI issues and offer opportunities for plan sponsors to evolve to better serve all plan members.
Ensuring communications are representative of the diversity of plan membership is one easy-to-implement solution to make pension plans feel inclusive. In my experience, plan members tend to respond well to organizations in which they see themselves reflected. This means plan sponsors should ensure communications are inclusive of all types of diversity — ethnicity, gender, sexual orientation and religion, as well as visible and non-visible physical and mental differences. Plan sponsors can ask themselves: Are the images and the language used in pension communications inclusive? Is the communication available in alternate accessible formats? Does the communication reach and appeal to the intended diverse audiences?
According to a recent survey by Aon, a quarter of employer respondents said they’re addressing DEI issues within the operations of their plan, including via the makeup of committees and communications, as well as by undergoing training for unconscious bias among the decision-makers at their organizations. A further quarter of respondents said they’re planning or currently undergoing work to address DEI issues — so as a society we’re clearly moving forward. However, despite these efforts, I believe there’s still significant progress to be made.
As the OECD revealed in its study, plan design is critical to achieving equity for all. This goes not only for capital accumulation plans, but also for more traditional defined benefit plans. It’s common for plans to offer a subsidized joint and survivor pension, thus appearing to be biased towards marriage. The recent decision, Fraser v Canada, from the Supreme Court of Canada proves to me that the best intentions of employers aren’t enough.
Plan sponsors need to be diligent in avoiding benefits that may be perceived to have a negative impact or bias toward a certain demographic or group. In the Fraser case, the plaintiffs claimed the benefits were discriminatory toward women with children since they couldn’t fully benefit from the plan on a job-sharing program. I’m simplifying for the purpose of this article, but the point is the design of benefits, pension and retirement plans must consider DEI principles.
Like my earlier example on subsidized benefits for participants with a spouse, other subsidies can also be inequitable. For example, early retirement subsidies could be sub-optimal or even unreachable for certain groups of participants that are from lower/middle-class socio-economic backgrounds and that could benefit more from post-retirement indexation. Also, plan sponsors should be aware of any legacy issues in plans that may be difficult to adjust within the current legislative framework and sponsors should make plans to address DEI issues proactively.
I’ve seen greater efforts being made to ensure boards of directors are also more representative. Many studies have shown that diverse and varied teams make better decisions and I believe, ultimately, that brings better financial results. The same is likely true of a diverse pension committee, which will help ensure plan design and communications are representative. And plan sponsors should remember that having a diversity of providers also includes investment managers and actuarial teams.
Addressing DEI in practice can make plan members feel valued and respected. In a perfect world, discrimination and unconscious bias wouldn’t exist, but plan sponsors must recognize these are realities and employers, as well as the benefits, pension and retirement industries, can and must do better. Last year — with everything from the onset of the coronavirus pandemic to the murder of George Floyd — was a shocking reminder not to be complacent.
Taking a closer look at benefits, pension and retirement offerings through a DEI lens can make the world more just and improve outcomes for all. Plan sponsors, as well as benefits, pension and retirement professionals, can start by educating themselves about a range of DEI subjects and then look for ways to directly make a difference today and in the future.