African-Americans, Hispanics Lag on Retirement Savings

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.