Women of Color Underprepared for Retirement

Women of color, even those with access to employer-sponsored plans, are not prepared for retirement, a survey indicates.

According to the survey from the State Farm Center for Women and Financial Services at The American College, nearly three in four women reported they considered saving for retirement as a high financial priority. Hispanic (67%) and Asian women (68%) were less likely than women in the general population (predominantly Caucasian, 73%) and African-American women (74%) to place an emphasis on retirement savings. 

Among Asian women, even those with higher incomes were less likely to prioritize accumulating assets for retirement. Those women who do not work with a financial adviser were less likely to say that saving for retirement was a high priority. 

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In terms of retirement vehicles, workplace retirement plans were found to be the most common way women are saving for retirement. According to the survey report, seven in ten women overall (70%) have a defined contribution (DC) retirement plan through work. Another one in four (24%) have a traditional defined benefit pension (DB) plan. 

African-American women were more likely than average to report having both a DC (76%) and a DB plan (27%) available to them. Of those with a DC plan at work, nine in ten (89%) say they are currently contributing money. African-American women were found to be significantly more likely to say they were not contributing. 

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The report also found that Hispanic and African-American women were less likely to have individual savings and investment products. Hispanic women (37%) and, to an even greater extent, African-American women (31%) were less likely than others to report owning an IRA. Women in these two groups were also less likely to have stock and bond mutual funds, individual stocks and bonds, or annuities. 

Seventy-three percent of survey respondents expressed at least some level of concern about running out of money in retirement.  Just 28% of women are highly confident in their ability to calculate how much they need to save for retirement.

Expectations for retirement lifestyles, especially for working and housing in retirement, vary quite a bit and reveal troubling gaps in preparation, according to the report. For example, many Americans retire before they plan to, typically due to health issues that prevent them from working. Yet, many of the women surveyed for the report plan to work in retirement and may be planning on that income. Hispanic women were found to be especially likely to say they plan to work in retirement, and Asian and African-American women are more inclined than others to say they plan to start a business in retirement. 

Housing plays a vital role in retirement finances, says the report. Both Asian and Hispanic women suggest that they will alter their living situations in retirement. They are more likely than women in the general population and African-American women to say that they plan to downsize their housing in retirement or to live abroad during their retirement years.

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Half of survey participants agree that working with a financial adviser would help them achieve their financial goals. However, even among the more affluent respondents, women of color (29% Hispanic, 32% Asian and 29% African American) are less likely than women overall (43%) to be working with an adviser.

Women of color are more likely than the general population to think they cannot afford a financial adviser. In addition, only three in ten women, overall, feel confident in their ability to select the right adviser to work with. Twenty-three percent of all respondents indicated it is important to work with an adviser who specialized in women’s unique financial needs. 

The report suggests financial advisers and plan sponsors need to address the challenges that these women face. Steps should be taken to improve a sense of financial security, learn how to build cash reserves, plan for retirement, and manage personal risks. Related efforts include increasing outreach to women of color, reviewing their insurance protection, quantifying retirement-related goals, and recognizing family demands such as helping children with educational goals and home care of infirm relatives. 

The survey report is available here.

SEC Orders Former Pru Broker to Cough Up $763K

Frederick J. O’Meally had a final judgment entered against him by a federal court in New York stemming from an action filed by the Securities and Exchange Commission (SEC).

O’Meally, a former registered representative of broker/dealer Prudential Securities, is the sole remaining defendant in a fraud action the SEC brought in August 2006, which alleged that he used deceptive practices to evade blocks by mutual fund companies on his market-timing trading. He was ordered to pay over $763,000 in disgorgement, prejudgment interest and a civil penalty by the U.S. District Court Judge for the Southern District of New York.

Market timing is an attempt to predict the direction of the market, using a combination of factors, such as recent price and volume data, or economic data, to make investments. In a New York Times story in November 2006, O’Meally described his own strategy as containing a mix of options, derivatives, currencies and American depository receipts, that allowed him to make “a few hundred trades in a few minutes.” At the time of the article, O’Meally said he had stopped using mutual funds in market timing.

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At Prudential Securities, market timing was widely and openly used, and O’Meally had already been named by the SEC, along with three other former brokers of the company, in a civil action. Prudential Securities, in a separate SEC action concerning market-timing practices, agreed to a $600 million settlement. In 2007, the SEC fined a former Prudential Securities executive for failing to put a halt to market-timing practices. (See “SEC Announces Distribution of Prudential Market-Timing Settlement.”)

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In December 2011, a federal jury returned a verdict in the SEC’s favor on securities fraud charges against O’Meally, a resident of Bay Shore, New York. The jury found O’Meally liable for violations of Sections 17(a)(2) and/or (3) of the Securities Act of 1933. The verdict against O’Meally followed a month-long trial in Manhattan before the Honorable Judge Swain.

The Commission filed its complaint on August 28, 2006 against four registered representatives formerly employed by Prudential. The complaint alleged that, between 2001 and 2003, certain mutual fund companies detected market-timing activity by the defendants and attempted to block the defendants and their hedge fund customers from further trading in their funds.

The complaint also alleged that the defendants used fraudulent and deceptive trading practices to conceal their and their customers’ identities to evade these blocks. Cases against the three other defendants had been resolved previously by settlement. In its final judgment, the court ordered O’Meally to pay $444,836 in disgorgement of his profits from illegal market-timing transactions plus $258,401.55 in prejudgment interest and a civil penalty of $60,000, for a total of $763,237.55.

The SEC also brought related enforcement actions against several other parties associated with Prudential Securities concerning deceptive market-timing activities, as well as a settled enforcement action against Prudential Securities itself on August 28, 2006, in which Prudential agreed to pay $270 million that was later distributed to harmed investors. 

The SEC release with information about SEC v. O’Meally et al. is here.

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