Data & Research October 8, 2009

Hispanics at Disadvantage for Saving for Retirement

An Insured Retirement Institute (IRI)-sponsored report suggests Hispanic Americans continue to disproportionately face financial hurdles in preparing for retirement.

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Hispanic retirement savings rates are falling, according to the report. Recent data show that 41% of Hispanic workers said they have saved money for retirement (outside of their work or otherwise), compared to 60% in 2003.

The report shows Hispanics, on average, have less access to employer-sponsored retirement plans and a decreased likelihood of participating in employer-based retirement benefits. Only 25.6% of Hispanics are covered by employer-sponsored retirement plans, compared to 42.5% of whites and 40% of African-Americans. Twenty-six percent of Hispanic workers participate in an employment-based retirement savings plan compared to 60% of Americans overall (see “African-Americans, Hispanics Lag on Retirement Savings”)

Since they have less access to, and participation in, employer-sponsored retirement plans, Hispanics are more dependent on Social Security for retirement income, according to the report. Almost 75% of older Hispanics receive Social Security benefits, and Social Security represents the largest single source of retirement income for older Hispanics. Of those Hispanics age 65 or older receiving Social Security benefits, nearly 80% rely on these benefits for 50% or more of their income.

The report also found that Hispanics’ personal savings rate (the percent of after-tax income left after household bills are paid) has dropped from a peak of 15% in 1975 to a negative rate in 2002 and 2006; however, the rate has slowly increased to slightly above 1%. More than half of Hispanics have less than $10,000 total saved for retirement.

For those who do have employer-sponsored plans, just 20% have funds saved outside of their employer’s plan, compared to 32% of all workers.

Less than one-quarter of Hispanic workers have calculated how much money they will need to save for a comfortable retirement, compared to 42% of non-Hispanics. When asked, half of Hispanics said that they need more information to help them plan their retirement. Only 25% of Hispanics said they learned about retirement planning from a financial institution, and 64% said they learned on their own

In addition, the report noted that having less retirement savings means Hispanics are less prepared for long-term medical needs. In 2006, more than a third of Hispanics (34.1%) were not covered by health insurance, compared to 15.8% of the general population. “As a result, Hispanics may be more likely to delay retirement and continue working in order to have access to employer-based health insurance services or to generate sufficient income to pay for out-of-pocket medical expenses,” the report said.

The fully report, “Hispanic and Retirement: Challenges and Opportunities,” is available here.

Data & Research October 8, 2009

More than Half of Plans Offer Advice

The Profit Sharing/401k Council of America (PSCA) found the number of sponsors offering investment advice is on the rise.

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The 52nd Annual Survey of Profit Sharing and 401(k) Plans found that for the first time, more than half of all plans (51.8%) offer investment advice to participants. The survey found more small companies offer investment advice than large companies, according to a release of the results.

The report looked at the 2008 plan-year experience of 908 plans with 7.4 million participants and more than $600 billion in plan assets. The research found that following a big increase in 2007, the adoption of automatic enrollment has slowed but continued. Nearly 40% of all plans and more than half of large plans use automatic enrollment.

Approximately 83% of eligible employees have balances in their 401(k) plans, up from 81.9% in 2007, according to the PSCA. Pre-tax participant deferrals for the survey sample average 5.5% of pay for non-highly compensated workers and 6.6% of pay for highly compensated workers.

More than a third (36.7%) of plans permit Roth 401(k) contributions, up from 30.3% last year, and 15.6% of those eligible to make Roth contributions are doing so.

Regarding small balances left in plans, the survey found half of plans transfer balances between $1,000 and $5,000 to an IRA and pay out balances less than $1,000.  Forty percent of plans retain balances of more than $1,000 in the plan, and 10% of plans retain all small balances in the plan.

Employer Contributions Stayed Steady

PSCA data found company contributions in 2008 averaged 4.1% of payroll, the same as in 2007. They are highest in profit-sharing plans (9.3% of pay) and lowest in 401(k) plans (2.9% of pay). Only 1% of respondents indicated that they suspended their employer match.

Numerous formulas are used to determine company contributions, but in plans permitting participant contributions, the most common formula is a fixed match only, present in 24% of plans. For plans with fixed matches, half of plans match $0.50 per $1.00, most commonly up to the first 6% of pay (29% of plans). Among profit-sharing plans, the most common type of company contribution is a discretionary profit-sharing contribution only, which is present in 67.9% of plans.

Immediate vesting is present for matching contributions in 37.1% of plans and for non-matching contributions in 26.1% of plans. Among plans that do not have immediate vesting, graduated vesting tends to be the most common arrangement for all plan types.

Nearly 24% of plans offer a safe harbor match, and 6% offer an elective safe harbor contribution. Of plans that offer a safe harbor match, 30.4% offer the automatic enrollment safe harbor match.

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Participants Did not Abandon Equities

PSCA said its survey found that the typical plan in its database has approximately 60% of assets invested in equities (in 2008), down only 5% from 2007. Assets are most frequently invested in actively managed domestic equity funds (23.1% of assets), followed by stable value funds (13.7%), target retirement date funds (8.4%), indexed domestic equity funds (8.3%), actively managed international equity funds (7.7%), and balanced stock/bond funds (7.7%).

The number of funds offered to plan participants has plateaued, according to the PSCA. Plans offer an average of 18 funds for participant contributions. The funds most commonly offered for participant contributions are actively managed domestic equity funds (81.3% of plans), actively managed international equity funds (78.5% of plans), indexed domestic equity funds (70.2% of plans), and actively managed domestic bond funds (65.8% of plans).

The availability and use of target-date funds continues to grow, as 57.7% of plans now offer them. Nearly 92% of companies offering target-date funds use a packaged product. Larger companies are more likely to customize their own funds.

Overwhelmingly, money is managed in mutual funds, although larger companies also use collective trusts and separately managed accounts. Self-directed brokerage windows are offered in 15.5% of plans, while open mutual fund windows are offered in 8.3% of plans. On average, plans invest 2.2% of plan assets through brokerage windows and 1.5% through mutual fund windows.

The survey report can be purchased at www.psca.org or by calling 312.419.1863.

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