Women are contributing less to their employer-sponsored defined contribution (DC) plans than their male counterparts, just 6.9 percent of their pay compared to 7.6 percent for men, according to a new report from Aon Hewitt (Aon).
The difference, though not monumental, is not marginal, either. In addition to devoting 0.7 percent less of their pay to their DC plans, the report found nearly one-third of women contribute below the company match threshold compared to one-quarter of men. These two factors render women, across all salary ranges, with significantly less in their retirement plan balances than men — $59,300 for women, $100,000 for men.
The findings become even more unsettling considering women usually have longer life expectancies (therefore requiring more funds) and many taking time away from their careers to have children.
According to Aon’s projections, full-time female professionals should enter retirement with 11.2 times their final pay. In actuality, women are entering retirement with 8.6 times their final pay leaving them with a shortfall of 2.6 times final wages. Males, on the other hand, have a shortfall of just 1.9 times.
Another troubling factor uncovered by the study is that women are disproportionately impacted by leakage of funds out of their DC plans. Aon found that women and men both take loans from their retirement savings at similar rates (a practice that is not advised but also not hugely detrimental if loans are repaid in full) but women are more inclined to default on a loan at job termination than men.Seventy-one percent of women who terminated employment with an outstanding loan defaulted on that loan compared to 64 percent of men.
Aon suggests women employ the following methods to build a more stable nest egg:
- Invest more and begin investing earlier;
- Take full advantage of employer match contributions;
- Make the most of automatic features;
- Take steps to avoid leakage of retirement funds;
- Take advantage of “help” tools.
Data in the report was compiled by analyzing over 140 DC plans representing 3.5 million eligible employees.