African-Americans, Hispanics Lag on Retirement Savings

A new study found African-American and Hispanic workers have lower participation rates and contribute less to their 401(k) plans than their white and Asian counterparts.

The study by Ariel Investments and Hewitt Associates found that, regardless of age or income, 66% of African-American employees and 65% of Hispanic employees participate in their company’s defined contribution plans, compared to 77% of white workers and 76% of Asian workers, according to a press release of the survey results. Among those who save, white employees contributed 7.9% of income, compared to Hispanic and African-American workers, who contributed 6.3% and 6%, respectively. Asian workers contributed 9.4% of income.

The result: smaller average account balances for African-American and Hispanic workers. The Ariel/Hewitt study found that among employees who earn between $30,000 and $59,999, African-Americans had an average account balance of $21,224; Hispanics, $22,017; Asians, $32,590; and whites, $35,551.

The press release said the disparity exists even at higher pay levels: African-American employees who earn $120,000 or more have saved $154,902 in their 401(k) plans, compared to $223,408 for white workers in the same pay range.

The companies studied—57 large, primarily FORTUNE 500 companies—offered a variety of forms of investment education during 2007 (the results were based on year-end 2007 results). Nearly 90% providing written materials and offering online modeling and guidance tools, according to the study report. Two of every three provided targeted communication or offered on-site seminars, workshops, or meetings (see “Zooming In). Forty percent offered seminars/workshops provided by outside advisory services, and 35% offered one-one-one financial counseling.

Investing and Withdrawal Behavior

The research also revealed that African-American workers are less likely than Hispanics, whites, and Asians to invest in equities. African-Americans had two-thirds (66%) of their 401(k) assets invested in the stock market, compared to whites and Asians, which had 72% and 73%, respectively. Hispanics had 70% of their assets invested in equities.

African-Americans are also more likely than the study population overall 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 (39%) and 29% of Hispanic workers borrowed from their retirement accounts compared to just one in five white workers (21%). Asian workers were the least likely to take a loan against their 401(k) plans, with less than one in five (16%) doing so.

Nearly 8% of African-American workers had taken a hardship, compared to 3.4% of Hispanics, and around 2% each for whites and Asians.

The study analyzed 401(k) information for nearly three million employees in the U.S. It was conducted by the Ariel Education Initiative, the non-profit affiliate of Ariel Investments, and Hewitt Associates. The study report, “401(k) Plans in Living Color: A Study of 401(k) Savings Disparities Across Racial and Ethnic Groups—The Ariel/Hewitt Study,’ can be downloaded here.