Auto Enrollment Particularly Good for Blacks and Hispanics

Vanguard research on diversity and retirement saving and investing shows that automatic employee enrollment into company 401(k) plans raises participation for all racial and ethnic groups.

Vanguard said the increase is particularly notable for blacks and Hispanics, especially low earners. Auto enrollment dramatically improves the plan participation rate for blacks—from 57% under voluntary enrollment to 94% through automatic enrollment, a relative increase of more than 60%. The Hispanic participation rate also jumps, from 67% under voluntary enrollment to 95% through automatic enrollment, a relative increase of over 40%.  

Automatic enrollment is particularly important for low-income blacks and Hispanics, who are far less likely to participate in a DC plan under voluntary enrollment. The participation rate in voluntary enrollment plans among black workers earning less than $30,000 a year is only 35%; it is 36% for Hispanic workers in the same income group. These rates jump to 93% and 94%, respectively, under automatic enrollment.


Whites and Asians Save and Diversify More  

Automatic enrollment does not necessarily reduce racial and ethnic group differences in plan savings rates. Whites and Asians are more likely to override their plan’s default deferral rate and choose a higher one. As a result, deferral rates for whites and Asians with auto enrollment are about 0.5 to 2 percentage points higher than those for blacks and Hispanics. The researchers noted that an automatic annual escalation of deferral rates raises them across the board, and over time may also mitigate differences in plan savings rates among these groups.  

A press release said in automatic enrollment plans, many participants are defaulted into an automatic investment program, such as a target-date fund. These broadly diversified funds inherently reduce many of the extreme asset allocations seen in voluntary enrollment plans. For example, in voluntary enrollment plans, Asians and whites are more likely to be aggressive equity investors; blacks are more apt to be zero-equity investors.   

Vanguard researchers analyzed 2010 data for more than a quarter million participants in seven large defined contribution plans (DC) recordkept at Vanguard with various automatic plan features.  

The research report, In Diversity and Defined Contribution Plans: the Role of Automatic Plan Features, can be found at