Data & Research March 22, 2024

Race, Gender Disparities Still Evident in Retirement Account Balances

Even when accounting for salary and tenure, the gap still exists.

Reported by

Significant race and gender disparities persist in retirement account balances, even after adjusting for salary and tenure, according to research from the Collaborative for Equitable Retirement Savings.

The initiative, established in 2023, is a collaboration between the Aspen Institute Financial Security Program, Morningstar Retirement and the Defined Contribution Institutional Investment Association. According to the initiative’s first report, “Same Income, Same 401(k), Different Account Balance: The Critical Role of Retirement Plan Design in Addressing Racial and Gender Retirement Savings Gaps,” the discrepancies in retirement account balances can be linked to differences in contribution, loan and withdrawal behavior,

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

“Income and tenure differences do not fully explain the reasons that Black and Hispanic workers in our dataset save less than their white counterparts, after controlling for age, salary, tenure, and plan design variables, nor do they fully explain the gender differences that we see in the data,” the report states. “Simply put, the differences in account balances across races and genders do not appear to be solely a result of differences in economic circumstances. An easy way to understand these differences in savings is by considering participants’ average account balances as a ratio of salary.”

The initiative’s research, conducted in 2023, found that among Black men aged 55 to 59, the average ratio of account balance to salary was about one to one, while Black women had lower average ratios. By contrast, white men and women had balances approximately 1.81 and 1.80 times their salaries, respectively. Hispanic workers fell in between these figures, with men’s balances 1.33 times their salary and women’s 1.43 times.

Those disparities widened for workers closer to retirement, emphasizing the need for targeted interventions, the report noted. According to the collaborative’s analysts, the key reasons for the disparity are:

  1. Discrepancies in contributions: After accounting for age, salary, tenure and plan design factors, Black and Hispanic females contributed a lower proportion of their salaries than their white counterparts, impacting their long-term retirement savings prospects;
  2. Withdrawals before retirement: Black and Hispanic workers tended to make more withdrawals before retirement than white participants, hindering the overall growth of their retirement savings; and
  3. Differences in loan usage: Black participants were more likely to have unpaid loans than white individuals, allowing them to save less in retirement accounts.

The report suggested that implementing cost-effective measures to encourage participants to refrain from early withdrawals could also significantly narrow the racial gap in retirement savings.

“Simulation results indicate that eliminating preretirement withdrawals would substantially mitigate race and gender disparities at retirement, particularly for early- and mid-career 401(k) participants,” the report stated.

Analysts noted that account balances used in the study do not include savings outside of workplace plans. However, workers’ tenure and income were adjusted to ensure comparisons were as equitable as possible.

Data & Research March 22, 2024

HSA Balances See Upward Trend, Despite Increase Healthcare Spending

Recent EBRI data reveal a rising average in health savings account balances, despite employees frequently using them for short-term spending.

Reported by

New data from the Employee Benefit Research Institute indicate that amid escalating healthcare costs and out-of-pocket expenses, average balances in health savings accounts have continued to rise since the onset of the COVID-19 pandemic.

The average HSA balance rose to $4,418 at the end of 2022 from $2,711 at the start of the year, the most recent data available in EBRI’s database, given that participants can still contribute to 2023 HSAs until taxes are due in April.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Jake Spiegel, a research associate at EBRI, says he sees this trend continuing in 2023 and into the start of 2024 as well.

EBRI’s analysis revealed two predominant factors associated with higher average account balances. The first was that age is strongly associated with higher HSA balances: the older the accountholder, the higher the average balance.

“When you’re young, you tend to have less disposable income, so you’re able to spend less to begin with [compared with] somebody who’s been established in [their] career for a few years,” Spiegel explains.

Older workers also tend to incur more health care expenses than younger workers, hence the need, and willingness, to contribute more to their HSAs.

In addition, EBRI found that account tenure is strongly associated with higher balances. The longer someone has had their account, the more contributions he and his employer are likely to have made.

Most accountholders in EBRI’s database—which analyzes more than 14 million HSAs—took a distribution in 2022, with an average withdrawal of $1,868. However, relatively few accountholders spent down their entire accounts, suggesting that many participants are aware of, and reaping, the tax advantages—tax-free contributions, tax-free growth and tax-free withdrawal for health care costs—that HSAs offer.

The report explained that workers view HSAs through different lenses, as some view the accounts as a short-term spending account to be used when out-of-pocket costs crop up, whereas others view them as longer-term savings vehicles.

“The financial wellness gurus [often] say, ‘contribute as much as you can and never take distributions and don’t touch that money until retirement,’” Spiegel says. “But the fact of the matter is: That advice is not appropriate for everybody.”

Spiegel argues that it is not necessarily a “bad thing” that employees are using their HSAs as short-term spending vehicles, because the accounts are still helping people stretch their health care dollars further than they otherwise could.  

EBRI also found that accountholders who received an employer contribution to their HSA were more likely to have taken a distribution than accountholders who did not receive an employer contribution, and they took larger distributions on average. This is likely because those who receive employer contributions may feel more comfortable taking larger distributions, knowing that their employer’s contribution added to their account balances.

Spiegel adds that employees who do not receive an employer contribution tend to contribute more themselves, whereas those who do receive an employer contribution tend to contribute less. However, the employer contribution makes up for the lower employee contribution and ultimately results in a higher account balance.

He says accountholders with higher balances are also more likely to invest their HSAs.

In general, EBRI found that relatively few HSAs are invested, as only 13% of accountholders invested their HSAs in assets other than cash. Spiegel says it is not wise for employees to invest their HSA balances in risky asset classes, especially if they expect to use the funds in the shorter term.

However, the report stated that if accountholders have a large enough buffer in liquid accounts to weather a larger, unexpected health care expense, then they may be better off at retirement by investing some portion of their HSAs.

EBRI concluded that providing an employer contribution to an HSA, or even allowing for them to be invested, will not automatically cause an investor to treat his HSA as a long-term savings vehicle, but plan sponsors and administrators do play a “critical role” in helping accountholders understand the long-term tax advantages and financial wellness benefits of contributing to an HSA.

«