news & trends
TRENDS
Race, Ethnicity Impact Investing Behaviors
Study reveals African-Americans and Hispanics are less prepared for retirement than other groups.
Depending on their race and eth- nicity, U.S. employees save and invest differently in their 401(k)
plans. Regardless of age or income,
African-American and Hispanic workers have lower participation rates and
contribute less to their 401(k) plans than
their white and Asian counterparts, according to a new report. As a result, their
401(k) account balances are negatively
impacted and chances for a comfortable
retirement significantly compromised.
The report, 401(k) Plans in Living
Color: A Study of 401(k) Savings Dis-parities Across Racial and Ethnic Groups
— The Ariel/Hewitt Study, is the largest
examination of the 401(k) saving and
investing behaviors of African-American,
Hispanic, Asian and white employees. It
analyzed 401(k) information for nearly
3 million employees across 57 large, primarily Fortune 500 companies in the U.S.
Two-thirds (66 percent) of African-American employees and 65 percent of
Hispanic employees participate in their
company’s defined-contribution plans,
compared to 77 percent of white workers and 76 percent of Asian workers,
the study shows. Even after adjusting
for factors such as age and income, the
disparity remains. Additionally, African-Americans and Hispanics contribute to
their 401(k) plans at much lower levels
than their white or Asian counterparts.
Among those who save, white employees
contributed 7. 9 percent of their income,
compared to Hispanic and African-American workers, who contributed 6. 3
percent and 6 percent, respectively. At 9. 4
percent, Asian workers had the highest
contribution rate of all groups.
African-American workers are less likely
than Hispanics, Whites and Asians to invest
in equities.
loans and withdrawals.
African-American workers are less
likely than Hispanics, whites and Asians
to invest in equities, the findings show.
African-Americans had two-thirds (66
percent) of their 401(k) assets invested
in the stock market. By comparison,
whites and Asians had 72 percent and
73 percent, respectively, of their 401(k)
plan assets invested in equities. Hispanics had 70 percent of their assets
invested in equities.
African-Americans are also more likely
than other groups in the study to have
a loan and are more than twice as likely
to take a hardship withdrawal from their
401(k) plans. Nearly two of every five
African-American workers and almost a
third of Hispanic workers borrowed from
their retirement accounts compared to
just one in five white workers. By contrast, Asian workers were the least likely
to take a loan against their 401(k) plans,
with less than one in five doing so.
“These statistics are troubling because
loans and withdrawals jeopardize long-
term financial security to satisfy immediate needs. The impact is heightened
during an economic downturn, when
unemployment rises and withdrawals and
loan defaults increase. We now realize this
risk is magnified for African-American
and Hispanic workers based on the results
of our study,” says Barbara Hogg, principal at Hewitt Associates and co-leader of
The Ariel/Hewitt Study.
What can be done?
The study makes the following recommendations to help address this issue:
■ Encourage employers to voluntarily
collect and report 401(k) plan data
by race and ethnicity. This will enable
employers to know and manage where
gaps exist among their workers.
Different investing behaviors
The study examined three other factors
that can further impact an employee’s
401(k) plan balance: equity exposure,
■ Modify loan requirements to
decrease the likelihood of default.
Extending the amount of time a
terminating employee has to pay off a
loan may improve overall retirement
savings, particularly during challeng-
24 ADVISOR TODAY | November 2009
