Black and Hispanic workers participate less, and at much lower levels, than their white or Asian peers in 401(k) plans, according to a study released today by consultant Hewitt Associates and money manager Ariel Investments.
Sixty-six percent of black workers and 65% of Hispanic employees currently participate in their company's defined contribution plans, compared with 77% of white workers and 76% of Asian workers, the study found.
“Race is the No. 1 predictor of 401(k) plan participation,” Mellody Hobson, president of Ariel Investments, said in an interview. “Before we thought perhaps it was gender or another factor, but clearly it's race.”
The Hewitt/Ariel study found that among those who save in 401(k) plans, Asian workers have the highest contribution rate, at 9.4% of income, while whites contribute 7.9%; blacks, 6.3%; and Hispanics, 6%.
As a result of low participation rates and contribution levels, blacks and Hispanics have smaller average account balances in their 401(k) plans. For example, white employees who earn between $30,000 and $59,999 have an average 401(k) balance of $35,551, while blacks earning the same salary have an average balance of $21,224, and Hispanics, an average balance of $22,017. Asians have an average account balance of $32,590.
Separately, 66% of black employees' plan assets are invested in the stock market, compared with 73% for Asians, 72% for whites and 70% for Hispanics.
Also, the study found that black and Hispanic employees are more likely to borrow and take hardship withdrawals from their 401(k) plans. Nearly two of every five black workers, and almost a third of Hispanic workers, have borrowed from their retirement accounts, compared with just one in five white workers, and less than one in five Asian workers.
“We were really surprised by these troubling statistics, because loans and withdrawals have a dramatic impact on one's long-term financial security,” Ms. Hobson said.
Barbara Hogg, principal at Hewitt Associates and co-leader of the study, recommended that employers voluntarily collect and report 401(k) data by race and ethnicity; modify loan requirements to decrease the chances of defaults; and communicate with employees about how to manage and increase their savings.
The study analyzed 401(k) plan data for 3 million employees across 57 large, mostly Fortune 500 companies in the U.S.