Latest / The Diversity Career Podcast with Fexingo: Inclusion, Equity, and Underrepresented Professionals / How One Company Made Its 401k Auto-Enroll Close the Wealth Gap
Transcript
- Lucas: We talk a lot on this show about pipeline issues, about mentorship, about sponsorship. But there's a quieter structural gap that doesn't get nearly the same attention, and it has huge implications for long-term wealth building. Luna: I'm guessing you're talking about retirement plans — specifically, who actually gets access to them and who doesn't. Lucas: Exactly. A 2024 study from the Center for Retirement Research at Boston College found that only 58 percent of Black workers and 55 percent of Hispanic workers participate in an employer-sponsored retirement plan, compared to 71 percent of white workers. Now, some of that is job type and tenure. But a big part of it is plan design. Luna: So the defaults matter. And one company I came across is a mid-sized professional services firm based in Atlanta — I'll call them Pinnacle Advisory for now — that decided to make their 401k work differently. Lucas: Right, and this is a firm with about 2,800 employees, roughly 40 percent people of color. What they did is actually pretty simple in concept but took some internal conviction to implement. They switched to automatic enrollment for all new hires, set the default contribution at 6 percent of salary, and they bumped the match to 4 percent. They also eliminated the one-year waiting period that a lot of plans still have. Luna: That waiting period is a huge stealth barrier. If you're a first-generation professional or someone who's never had a 401k before, that one year can feel like an eternity, and by the time you're eligible, the habit of not saving is already set. Lucas: Exactly. So Pinnacle made the change in early 2024. Within 18 months, their participation rate among Black and Hispanic employees went from 58 percent to 91 percent. That's not a theoretical nudge — that's 33 percentage points of real people now building retirement savings. Luna: And the contribution rate matters too. Six percent is higher than the typical auto-enroll default, which is often 3 percent. That additional 3 percent compounded over a career is tens of thousands of dollars. Lucas: Right. So the company didn't just get people in the door. They got them saving at a meaningful level. And they paired this with financial wellness coaching, offered in both English and Spanish, which tackled another barrier: trust in the system. A lot of employees, especially from communities that have experienced predatory lending or financial exclusion, were skeptical of putting money into the market. Luna: So the coaching wasn't just about how to allocate funds. It was about building trust and explaining basic concepts like compound growth, dollar-cost averaging, and why the employer match is essentially free money. Lucas: Yeah. One of the financial coaches told me that the most common question they got was, 'What happens if I leave the company? Do I lose the money?' That's a really rational question if you've never had a retirement account before. The answer is, you keep your own contributions and the vested portion of the match, which is 100 percent vested after two years at Pinnacle. Luna: So the education piece closes that knowledge gap. But the key structural change was really the auto-enroll and the waiting period removal. Because it takes the decision out of the employee's hands at the moment of hire, when they're overwhelmed with paperwork. Lucas: Behavioral economics calls this 'status quo bias.' When a good default is set, most people stick with it. And the data from Pinnacle backs that up: 89 percent of auto-enrolled employees never changed their contribution rate in the first 12 months. They just stayed at 6 percent, which is a solid rate. Luna: Now, there's a criticism of auto-enroll — that it can be regressive if the default is too high for low-wage workers who might need that cash flow. Did Pinnacle address that? Lucas: They did. They offered an opt-out window during the first 30 days, and they allowed employees to decrease their contribution to as low as 1 percent at any time. Only about 6 percent of new hires opted out entirely, and another 4 percent lowered their rate. So the vast majority stayed at 6 percent. And for the lowest-paid quartile, the company actually offered a small cash incentive — a $200 contribution to the 401k at the one-year mark — to encourage them to stay in. Luna: That's a really thoughtful approach. It acknowledges that one size doesn't fit all, but the default still helps the majority. Lucas: The results are striking. Over the first 18 months, the average 401k balance for Black and Hispanic employees at Pinnacle grew from around $1,200 to just over $8,700. That's not a ton of money in absolute terms, but it's a seven-fold increase, and it's a foundation. For comparison, the average balance for white employees at the same firm grew from $14,000 to $22,000 — so the gap is still there, but it's narrowing. Luna: And the gap narrows more over time because of compounding. If they keep contributing at 6 percent with a 4 percent match, assuming a 7 percent annual return, after 10 years that $8,700 could be over $90,000. That's real wealth. Lucas: What I find really interesting is that this didn't require a massive budget. The match increase from 3 percent to 4 percent cost the company about 0.3 percent of payroll. The auto-enroll itself cost nothing to implement. The financial coaching program was about $60 per employee per year. For a firm with 2,800 people, that's less than $170,000 annually. That's a rounding error in most HR budgets. Luna: And you know what else? Employee turnover dropped by 14 percent in the 18 months after these changes. People who feel like their employer is investing in their long-term financial health are less likely to leave. Lucas: Yeah, that retention piece is a business case in itself. Replacing a single mid-level professional can cost 1.5 to 2 times their salary. So if you save even a handful of departures, the program pays for itself many times over. Luna: It's also worth noting that this approach scales. The Pension Protection Act of 2006 made auto-enroll much easier from a regulatory standpoint, and the SECURE Act 2.0, passed in 2022, actually created a tax credit for small employers that adopt auto-enroll. So the policy environment is supportive. Lucas: Right. And yet, according to data from Vanguard, as of 2025, only about 60 percent of 401k plans have auto-enroll, and even fewer — roughly 35 percent — have a default contribution rate of 6 percent or higher. So there's a huge gap between what's possible and what's actually happening. Luna: So why aren't more companies doing this? Is it inertia, or are there real concerns? Lucas: I think it's a mix. Some company leaders worry about the immediate cash flow impact on employees, especially in industries with tight margins. Others are worried about the employer match cost if participation spikes. But as Pinnacle showed, the match increase is actually modest, and the retention savings more than offset it. The bigger barrier is probably just that retirement plan design isn't seen as a DEI lever. Most diversity officers don't sit in the benefits committee. Luna: And that's the real missed opportunity. Because wealth inequality is the ultimate outcome of workplace inequality. You can get hired, get promoted, even get a seat at the table — but if you're not building retirement savings at the same rate, the gap just grows. Lucas: So if you're listening and you work in HR or benefits or even if you're just an employee who wants to bring this up — the data is on your side. Start with the waiting period. That's the easiest win. Then push for auto-enroll at a decent default. The behavioral economics literature is overwhelming. Luna: And if we've helped you think through a career move or a benefits change, or even just given you a concrete example to take to your own team, that's exactly why we do this show. A couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Yeah, it really does make a difference. We keep the show ad-free and focused on real cases, and listener support is how that works. So if you're able, that's the place. Luna: Back to Pinnacle — they're now sharing their framework with other mid-sized firms through a consortium. They're hoping to get 50 companies to adopt similar changes by the end of 2027. That could affect hundreds of thousands of workers. Lucas: And that's the kind of multiplier effect we need. One firm's 401k redesign isn't going to close the racial wealth gap overnight, but if 50 firms do it, if 500 do it, you start moving the needle at a population level. Luna: And it's such a concrete, measurable thing. You can track participation rates, contribution rates, balances over time. It's not a vague promise — it's a retirement account. Lucas: Right. It's a structural fix for a structural problem. And it costs almost nothing compared to the impact.