Ariel Education Initiative and Aon Hewitt found more than
two-thirds of workers who took a withdrawal from their pension plans in 2010
reported they needed the money for an unexpected emergency, debt or day-to-day
living expenses. Black employees took hardship withdrawals more than any other
ethnic group, at 8.8% in 2010, compared with 3.2% of Hispanics, 1.7% of whites
and 1.2% of Asian workers.
In addition, half of black and 40% of Hispanic employees
carried a loan balance at the end of 2010, compared with just 22% of Asians and
26% of whites. The vast majority of workers who leave their employer with a
loan outstanding—80% of blacks, 76% of Hispanics, 71% of whites and 67% of
Asians—subsequently default on them.
Aside from loans and withdrawals, cashing out is one of the
most significant issues putting retirement savings at risk—particularly for
black and Hispanic employees. Two-thirds (63%) of blacks and 57% of Hispanics
who left their employer in 2010 cashed out their balances. In comparison, 39%
of white employees and one-third (34%) of Asian workers did the same.
Ariel and Aon Hewitt discovered a racial gap in defined
contribution (DC) plan participation. Two-thirds of Hispanics and 68% of blacks
contributed to a defined contribution plan in 2010, while 79% of whites and 80%
of Asian workers did so. Even when adjusting for factors such as age, salary
and tenure, black and Hispanic employees were significantly less likely to have
established a defined contribution plan account.
In an effort to encourage all workers to participate,
employers have increasingly adopted automatic enrollment features. More than
two-thirds (67%) of employers in the study automatically enroll new hires, up
from 58% in 2007. The study found the push toward auto-enrollment is making a
difference. Across all racial and ethnic lines, participation in defined
contribution plans dramatically increases when automatic enrollment is in
When auto-enrolled, 82% of black employees participated in a
defined contribution plan, compared with just 64% of those not subject to
auto-enrollment. The situation is similar for Hispanic workers—83% participated
in their employer’s defined contribution plan when auto-enrolled, compared with
59% that were not automatically enrolled.
However, while automatic enrollment is effective at
increasing participation rates, it may actually negatively affect contribution
rates in all races and ethnicities. Black workers who are auto-enrolled
contributed 4.3% of pay, on average, compared with 6.3% for those not
automatically enrolled. Similarly, Hispanic employees contributed 4.4% of pay
when automatically enrolled, versus 6.6% when they were not subject to
White employees who were auto-enrolled—contributed 5.2% of
pay, on average, to their defined contribution plans; those who were not
contributed 8% of pay. The contribution rate for Asian employees was 7.3% of
pay for the auto-enrolled, compared with 9.4% for those who self-enrolled in
The Ariel/Aon Hewitt study “401(k) Plans in Living Color II”
examined the defined contribution plans of 60 large U.S. organizations,
representing 2.4 million employees.