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

Is a 401(k) halal in Islam?

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.


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.

Making this type of option available for Muslims and other conscientious investors who may have different reasons for choosing not to support certain common 401(k) stocks can make a lasting impression. This may especially be considered a unique differentiator when so few companies currently offer Shari'ah-compliant investments. Another option is offering employees opportunity to invest in the company’s stock.

How important is this issue to Muslims? A few poll respondents indicated that they are considering leaving their current job in part to search for employers that offer Shari'ah-compliant plans or to become self-employed and thereby free to control their investments completely; nearly all (92%) of poll respondents said they would have a more favorable view of their employer if they offered this option. And one i4cp member company employee commented in an employee survey, “I personally consider not having an option for a Shari'ah-compliant retirement contribution a disservice on the part of the company against its Muslim employees (same for any employee with a strong preference in socially aware investment preference).”

In the global war for talent, this could be one more means to build a positive employer brand for attracting and retaining key talent. With drivers such as religious accommodation/inclusion and a growing social consciousness in investments by all employees, exploring these options can be a good way for an employer to make their compensation package stand out. Does your organization offer a Shari’ah compliant investment vehicle for its employees (primarily geared toward Muslims)? Does this accommodation take the form of specific mutual funds, the ability to direct the types of funds an individual invests in and/or company stock instead of a 401(k)? If yes, why? In order to build the employer brand, increase engagement or retention, etc? Does your organization offer other investment options that aren’t mentioned in this article?

We also encourage you to read about accommodating Muslim employees during Ramadan.