The black, white and brown of retirement savings: New study underscores perilous racial and ethnic differences

 African-Americans and Hispanics confront the near certainty of sharply reduced retirement savings than whites and Asian Americans because they participate less in 401(k) plans and are more likely to withdraw money from them when they do, according to a study of racial and ethnic disparities in savings and investing behavior.


A provocative study of about three million Americans, mostly employed at Fortune 500 companies, is being unveiled Tuesday and was overseen by Chicago's Ariel Education Initiative and Hewitt Associates, a prominent benefits processing and consulting firm. It was funded by the Rockefeller Foundation. Titled, "401(k) Plans in Living Color: A Study of 401(k) Savings Disparities Across Racial and Ethnic Groups--The Ariel/Hewitt Study," it can be found at or


As notable as the actual data appear to be, the study underscores a more fundamental reality, namely what has been the rather rapid shift to individual initiative and responsibility when it comes to dealing with retirement savings. Critical questions, such as whether one is saving enough or the impact of inflation on savings, simply can't wait until a worker is actually retired. Ignorance and inattention can be devastating, and may well prove to be for many minorities.


Ariel Education Initiative is a nonprofit arm of Ariel Investments, a very successful fund manager, whose president, Mellody Hobson, said in a formal release, "401(k) plans are

now the primary way Americans save for their golden years. Most are unaware there are significant savings disparities in 401(k) plans across racial and ethnic groups. This study reveals important differences that must be addressed if retirement security is to be a reality for all Americans."


The central explanations for the marked disparities, especially for African Americans, appear to include their suspicion of investing, especially in equities; a simple lack of experience; a tendency to take on greater loans than they can really afford; a generally higher rate of seeking hardship withdrawals from their 401 (k) plans; and a tendency to save less because they have less to save and confront competing obligations.


According to the study, 66 percent of African-American workers and 65 percent of Hispanic workers participate in the defined contribution plans offered by their companies, compared to 77 percent of whites and 76 percent of Asians. That disparity persists even after one accounts for age and income, it concludes, while African-Americans and Hispanics contributing at far lower rates than whites or Asians.


The study finds that, among the universe of those who save, whites contribute

7.9 percent of their income, compared to 6.3 percent and 6 percent for Hispanics and African-Americans, respectively, with Asians showing the distinctly highest contribution rate among all groups, at 9.4 percent. Lower contribution rates obviously prompt lower account balances. Examples cited in the study:


When it comes to employees who earn between $30,000 and $59,999, the following average 401(k) account balances were discerned: African-Americans ($21,224), Hispanics ($22,017), Asians ($32,590), and whites ($35,551). Divergences were found at far higher salary levels, with African-American workers who earn $120,000 or more saving an average of $154,902 in their 401(k) plans compared to $223,408 for white workers in that salary range.


One of several behavioral differences involves the attitude toward investing in the stock market, with African-Americans more wary of doing same.  According to the study, they invested 66 percent of their 401(k) assets in the market, while whites, Asians and Hispanics invested 72 percent, 73 percent and 70 percent, respectively. The study highlighted those rates, given its assumption that "employees with long-term time horizons should have a significant amount of their assets invested in equities," given the traditionally strong performance of the market.


Similarly, African-Americans were found to be more inclined to take out a loan and far more likely to take a hardship withdrawal from their 401(k) plans. About 40 percent of African-American workers and nearly a third of Hispanic workers borrowed from their

retirement accounts, compared to about 20 percent of white workers. Asian workers were less likely than all to take out such a loan, with fewer than 20 percent doing so.


The study offers several recommendations. They include urging employers to voluntarily collect and report 401(k) data by race and ethnicity; changing government rules and thus trying to decrease defaults by lengthening the amount of a time a terminating worker can pay off a loan; teaching financial literacy in schools; and simply doing a better job in communicating with and educating workers.

Some of those proposals seem so very simple and obvious. But one does wonder, for example, whether the public education system would be able to oblige, given the many mandates it now has for teaching various subjects so kids can be prepared for various tests. Further, will employers, under the gun in a lousy economy and obsessed with the near term, find it in their self-interest to carve out time to intelligently communicate investment fundamentals to workers?


Regardless, it's a fascinating topic and the lengthy treatments at and are worth checking out.