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Why Muslim Employees Aren't Participating in Your Company’s 401(k)

Why Muslim Employees Aren't Participating in Your Company’s 401(k)

Michaela Corning | i4cp

August 23, 2010

When it comes to news about American Muslims in the workplace, the focus is often centered on issues of discrimination, harassment, or misunderstandings related to Muslims’ religious beliefs and practices. Very little seems to be written about how to create an environment of inclusion beyond basic workplace accommodation.

For employers, the importance of understanding the laws specific to religious accommodation and being in compliance with those guidelines goes without saying. But viewing such compliance as simply a means to mitigate the risk of potential charges of discriminatory practices is rather short-sighted in today’s global environment. What’s needed is a deeper understanding of the multi-faith workforce, which can become a valuable strategy in attracting and retaining diverse talent.

With an estimated six to 10 million Muslims living in the U.S., it is likely that you employ, manage, or work with a Muslim. It’s even more likely that your Muslim co-workers are not taking part in your company’s 401(k) opportunities, which often make up a considerable portion of an employee’s total rewards package. What to do (or not do) about employer investment opportunities is one of the most common challenges and sources of frustration facing Muslims working in the U.S. and other Western countries.

Why? According to Islamic law (aka Shari’ah), it is forbidden to make money from interest known as “riba” in Arabic. It is also forbidden to make money from any business that sells items that are forbidden for Muslims to consume. For example, Islam prohibits the consumption of alcohol and pork products. Pornography is also strictly forbidden. So how does this relate to 401(k)s? Reaping financial gains from stocks of companies that profit from any of these forbidden items (e.g. alcohol, pork, interest, pornography, gambling, etc.) is also not permissible. This means that adherent Muslims won’t partake in most 401(k) programs unless there is an option for the employee to direct the allocation of funds into which their money is invested.

An informal poll conducted by i4cp on this topic found that very few companies offer this option or that employees were unaware as to whether or not this option existed. That means that these investment prohibitions prevent a significant number of Muslim Americans and those from Arab and SE Asian countries who work for U.S. companies from reaping the benefits of 401(k)s and employer matching. Many of these employees are actively recruited on H1-B visas to work in high-tech companies or other U.S. firms with large populations of engineers.

How can employers create more equitable compensation options for Muslim employees and in doing so restore the value of their total rewards package? This requires organizations to first work directly with the vendor managing the company’s 401(k) plan; begin by asking about the range of options the vendor has available and whether or not these would meet the needs of Muslim employees. The simplest option is of course for employees to be able to direct their investments into funds that are permissible. Another possible option is to offer an existing Shari’ah-compliant choice such as Amana Mutual Funds, which offers several investment vehicles for both individuals and employers.

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