Posted on 10/10/2007 11:05:28 PM PDT by Maigrey
NEW YORK - Employers have begun to discover troubling racial differences within their 401(k) retirement plans, a gap they say could leave today's black workers far less financially prepared for retirement than whites.
Investor surveys and research by two large employers strongly suggest that blacks participate in retirement plans at far lower rates and are much less likely than whites to invest in the stock market. An industrywide study of 401(k) plan activity by race has never been conducted.
Exelon Corp., the country's largest operator of nuclear power plants, discovered this year that about 15 out of every 100 black employees did not participate in its 401(k) plan, compared with around 10 of every 100 whites. It also found that one in three black employees contributed less than 5 percent of their pay to the plan, compared to just 14 percent of whites.
"We have to start addressing that now," said Andrea Zopp, Exelon's senior vice president of human resources. "If African Americans are not investing at the same rate, they will be behind," she said.
McDonald's Corp. discovered in 2004 that only half of its black store managers contributed to the company's 401(k) plan, a lower percentage than whites. The company plans to announce at an event in New York that by auto-enrolling store managers into the plan it has reversed the trend; today, 95 percent of black restaurant managers are plan participants.
Few employers today peer into their plans in search of racial or ethnic differences, as they are required to do for discrepancies between high- and low-income workers. Fidelity Investments and Vanguard Group, two of the country's largest retirement plan operators, both publish encyclopedic volumes on America's investing habits that lack any reference to race or ethnicity.
Experts attribute lower investment rates to poor instruction on financial topics in public schools, and misconceptions about the risk of stocks within parts of the black community. Employers have also been urged to tailor their messages on retirement savings to account for what some black and Latino executives say are important cultural differences. And the federal government has been urged to strengthen its national strategy for financial literacy, which has been criticized as ineffective.
A survey by Charles Schwab Corp. and Ariel Mutual Funds concludes that four in 10 African Americans with household incomes of $50,000 or more have no money in stocks, compared to just one quarter of whites.
Ariel's survey also found blacks who enrolled in retirement plans save a median $173 a month while whites save $252. The survey was administered in June and July and has a margin of error of about 4.5 percent.
A separate survey of retirees found whites are nearly twice as likely to have $100,000 or more saved than blacks, even when education, peak income level and other factors are held constant.
"There are clear differences between blacks and whites: How we think about money, where we save and invest our money, what we do with our money, and how we're influenced as to what we do with our money," said Mellody Hobson, president of Ariel Mutual Funds.
Since the 1980's 401(k) plans have replaced traditional pensions as the preferred retirement offering among employers. This shifted the responsibility — and the investment risk — to the employees, who are expected to contribute a portion of their paychecks before taxes. They can choose from a menu of investment options offered by their plan administrator, and some employers also match all or part of the employees' contributions.
The law allows plan providers to offer financial education to employees, but limits the kind of advice they can give. As a result, workers are largely expected to decide for themselves how much to save and which investments to choose.
The decline of pensions may disproportionately affect blacks. Two-thirds of employed blacks surveyed by Ariel and Schwab in 2006 worked for employers that offered pension plans, compared to half of employed whites. As employers make the switch, blacks may be less experienced in handling their own retirement investments.
Research conducted by companies handling retirement plan record keeping found striking differences.
Hewitt Associates found race was a more powerful predictor of an employee's retirement plan activity than age, gender, work experience or income, said Hewitt's chief diversity officer Andres Tapia. As a result, Hewitt plans to launch workshops for clients' black and Hispanic employees.
Great West Retirement Services has concluded from researching the behaviors of 20,000 of its own and clients' employees that blacks are more likely than whites to cash out of retirement plans when leaving a company, incurring penalties and taxes, instead of rolling the money into a tax-deferred individual retirement account. It also has found that its clients' black employees allocate their retirement savings to far fewer investment types than whites, Latinos and Asians, suggesting a lack of diversification.
McDonald's is now considering allowing Ariel employees to give educational sessions to its black employee network in the hopes they can better tailor the message.
"We found that people will listen more intently to people who are talking from within their network," said Rich Floersch, McDonald's chief human resources officer.
Ethnic and racial groups approach saving and investing differently, said Hewitt's Tapia, who was raised in Peru. For instance, "long-term," suggests a shorter time horizon to immigrant Latinos accustomed to political instability and high inflation that made long-term planning seemingly impossible, he said.
There are also lessons in the demographics of the black community, said Ariel's Hobson. A larger percentage of African Americans raise children in single-parent households, care for aging parents and have non-immediate family members in their homes, she said.
"That old saying, it takes a village, that's very, very clear in the black community," she said.
Historical factors may also play a role in blacks' preference of real estate over stocks. Racial discrimination by mortgage lenders may have heightened blacks' interest in owning a home, she said.
Blacks' lack of participation in retirement plans can put employers and the financial services industry on the defensive, said Lisa Toppin, Charles Schwab's vice president for employee development.
"We need to push past the discomfort," she said. "Everybody ought to feel a certain level of anxiousness around America's preparedness for retirement, because every chain is as strong as its weakest link."
Edward Giltenan, a spokesman for the Investment Company Institute, declined to commit the mutual fund industry's trade association to conduct research on race. But he said the industry played an active role in pushing through pension reform last year to encourage employers to automatically enroll their workers in 401(k) plans, increasing participation. It has also supported financial literacy programs for minorities. But more needs to be done, he said.
Ariel's Hobson hopes the company's survey, which has been conducted for a decade, will finally prompt more research and discussions over the gaps.
"We have 10 years of this data — year after year the same story," said Hobson, who sits on the ICI's board. "It's not like this is some kind of fluke."
Investing in a 401K is a personal decision - if a person doesn’t do so, it is their own personal decision. That person enjoys both the risks and rewards of that decision. Period.
I would not say that staying away from retirement plans is being careful.
The Jenna6 and the subsequent Black Klan marches (ie. marching for the right to beat a white kid unconscious in a cafeteria) are not evidence of the intelligence required to plan ahead for retirement. When the blacks want to drop their racial hatred and their love affair with loser government handouts to solve their every problem, it might be possible to judge them.
Right now, I think many of them are highly intelligent, unfortunately many more act in a tribal manner as in Africa. In Africa too often the other tribes are the enemy and are killed off. Just like the Hutus and Tsutsis (sic).
The distrust that blacks hae is not at all healthy. It is a paranoid way of approaching life. It makes me believe that if they took over America, that in six weeks America would be as a third world African nation.
Also, the statistics show that a large number of blacks are investing in retirement plans as do whites. Just in lower percentages. So the headline is false. Therefore, our conclusions are in part, reactions to false headlines, including all my statements. Therefore, everything I just wrote is inaccurate, to a degree, and so is everything you just wrote.
Have a nice day.
That's an interesting statistic. Presumably the greater ratio of blacks in government employment explains part of this.
With regard to 401(k) participation, however, the generational experience is probably important. The growth of a large, affluent black middle class is very much a product of the last generation. Children learn about money managment from their parents. I'd expect the generational learning curve to be pretty steep.
Family structure is also obviously a key. The fact that the substantial majority of African Americans grow up on the mom-alone plan means that too many grow up poor in households that don't save at all. Even for those who escape the welfare trap and make it to the middle class, the formative years create lingering disadvantages. Attitudes about saving may be one.
There is more to life than showing up. There must be effort.
There really is a simple solution to this obvious inequity. When the company knows how many blacks have established a 401(k), then it must limit the number of whites to that number of black participants; a lottery among whites will establish which white plays. Orrrrr, have the company fund those blacks who do not participate - sorry, no whites get that benefit - call it a Reparations Benefit. Of course, even though I jest in this, it very well may come to pass.
When I told him that my investment company had no idea if I were black or white, (and could care less), he had no answer.
Some people just excuse themselves from their responsibilities and opportunities by crying “RACE” when they realize they are ignorant and it may take some effort to educate themselves.
It is important to look at these accounts now and fix any problems before these people reach retirement age. Looking at the data by race will help create a solution.
A 401K plan is to a defined benefit plan as private accounts are to Social Security. If people cannot manage their 401k's, then we can't go from SS to private accounts.
Blacks don’t need to worry about retirement planning - thats acting “White”.
They have the Democrat party looking out for their retirement.
“Women and minorities to suffer most....”
This is all very true. So the obvious answer - is to educate blacks into understanding that investment for the future is a GOOD idea.
I can’t believe that the notoriously greedy and competitive pensions and investments industry cannot see this large market as an opportunity.
The story of the ant and the grasshopper comes to mind.
And that is exactly the issue - not race, but discipline. And regardless of if it is PC or not to say it, an accurate generalization is that many blacks are not raised to look out for their own financial well being - they (and many other people of all races here in the US) are trained to rely on the government.
Near you, there is a nail that has been hammered to perfection.
You are correct! The ONLY color that concerns investment bankers is green.
The dirty little secret about private investment is that private investors, on the average, make awful choices:
From January 1984 through December 2000, for average mutual fund investors:
- The average fixed-income investor realized an annualized return of 6.08%, compared to 11.83% for the long-term Government Bond Index;
- The average equity-fund investor realized an annualized return of 5.32%, compared to 16.29% for the S&P 500 Index;
- The average money-market fund investor realized an annualized return of 2.29%, compared to 5.82% for Treasury Bills and 3.23% for inflation. Money-market fund investors lose money after inflation.
Later Dalbar QAIB studies through 2007 (which are only available on a paid basis) show similar returns.
What do you base your "theory" on? I could pose an alternate "theory." I think it is primarily a matter of where you come from on the economic ladder. People at the bottom usually have not had a large stake in the stock market or other investments, i.e., there is no family history of such investments. I would like to see some data on whites who came from poor circumstances and then advanced economically.
I have never "walked in the moccasins" of a black person, but I can't blame blacks for being careful. You won't see me being critical.
It is not a matter of being "careful," it is a matter of educating people on what is in their best interests. These same people are those wedded to the current SS system and are against any partial privatization. We need to do a better job of educating people on personal finances. It is the only way that they are going to accumulate personal wealth and lift themselves up from poverty. In this particular case, blacks are not victims but fools. I could care less if it sounds "critical."
I’m black and I realize that I’m just one person out of 39 million but I never had a distrust of banks and financial institutions, I just didn’t know much about them. My mother was a housecleaner and my father was a self-employed gardener/handiman for wealthy estates in suburban New York’s Westchester County. They both worked on a cash basis. There was no training in my family in money management because we lived hand to mouth. My father had a fifth grade education and my mother had a seventh grade education. Both of my parents were orphans raised in Virginia. I was born in the suburbs of New York City where through nothing but hard work, they had managed to buy us a home.
I just checked after reading this thread. I have 60,000 in a 403.b tax sheltered annuity; 60,000 in Apple common stock, 12,000 in Honda stock, and 3,000 in Microsoft Stock.
I have 93,000 in a Vanguard Precious Metals and Mining mutual fund that is part IRA. I have 50,000 in Fidelity Contrafund and Leveraged Small Company Stock Mutual Funds and I keep 82,000 in a credit union certificate of deposit in addition to a regular checking and banking account.
I make 8805 a month teaching psychology in a community college.
That’s MY one black person’s story and I’m sticking to it!
My company employs that strategy and our non-participation rate has fallen below 5%.
The reality is that the extent to which the tax liability of the 401(k)s of the Retirement Boom is comparable to the liability to the Treasury which the money "invested" in the bonds in the SSTF represent is the extent to which Social Security will not become a catastrophe for our grandchildren. So Social Security recipients had better hope that the stock market prospers so that those 401ks produce the revenue to help redeem those bonds the SSTF is holding.And the dirty little secret of Social Security is that it takes payroll taxes from blacks and whites alike, and it pays benefits to blacks and whites alike as long as they survive - but the life expectancy of blacks is significantly lower than it is for whites. So Social Security is even more of a ripoff for blacks than for whites (and if you think Social Security isn't a ripoff for whites, you just do the math on how much you would have and be able to pass on to your children if you had put the 7.5% payroll tax and the matching "employer's contribution" into government bonds for a lifetime).
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