Continued economic uncertainty has led all workers to dip into their retirement savings, but minorities have been the hardest hit, according to a new study.
Ariel Education Initiative, a nonprofit affiliate of Ariel Investments and Aon Hewitt, the global human resources business of Aon Corporation (NYSE: AON), Chicago, published this finding in a summary of results from a study that compares the retirement savings of African-American and Hispanic employees with their Asian and white counterparts. The Joint Center on Political and Economic Studies and The Raben Group also collaborated on the The Ariel/Aon Hewitt study, “401(k) Plans in Living Color II,” which examines the defined contribution plans of 60 large U.S. organizations, representing 2.4 million employees.
The report finds that more than two-thirds of workers who took a withdrawal in 2010 reported they needed the money for an unexpected emergency, debt or day-to-day living expenses.
But African-American employees took hardship withdrawals more than any other ethnic group. Nearly 9 in 10 (8.8%) of African-Americans took hardship withdrawals in 2010, compared to 3.2% of Hispanics, 1.7% of whites and just 1.2% of Asian workers.
Half of all African-Americans and 40% of Hispanic employees carried a loan balance at the end of 2010, compared to just 22% of Asians and 26% of whites, the report adds.
The report notes that most workers who leave their employers with a loan outstanding—80% of African Americans, 76% of Hispanics, 71% of whites and 67% of Asians—subsequently default on them. Because loans account for an average of 205 of a worker's balance, those who default suffer a significant financial setback.
Two-thirds (63%) of African-Americans and 57% of Hispanics who left their employer in 2010 cashed out their balances, the report says. In comparison, 39% of white employees, and just over a third (34%) of Asian workers did the same.
Ariel and Aon Hewitt found there is a racial gap in DC plan participation. Just two-thirds of Hispanics and 68% of African Americans contributed to a DC plan in 2010, while 79% of whites and 80% of Asian workers did so. Even when adjusting for factors such as age, salary and tenure, African-American and Hispanic employees were significantly less likely to have established a DC plan account, the report adds.
But the report notes that participation in DC plans “dramatically increases” among participants who are subject to automatic enrollment. When auto enrolled, 825 of African-American employees participated in a DC, compared to just 64% of those not subject to auto enrollment. Likewise, 83% of Hispanic workers participate in their employer's DC plan when auto enrolled, compared to just 59% who were not automatically enrolled.