Invest In Minority Pension Participation

HR Magazine, Oct, 2001 by Carla Joinson

HR can help lift black and Hispanic workers' pension participation rates and retirement security.

Job oh security isn't the only financial uncertainty today's employees face. They also are concerned about their future. The 2001 Retirement Confidence Survey, sponsored by the Employee Benefit Research Institute (EBRI), the American Savings Education Council and Mathew Greenwald & Associates, shows that the number of workers who feel confident that they will have enough money to live comfortably in retirement dropped from 72 percent in 2000 to 63 percent today.

The situation is particularly acute for minorities. EBRI's 2001 Minority Retirement Confidence Survey (MRCS) indicates that certain minority groups have much lower expectations of a comfortable retirement than the rest of the workforce: 54 percent of blacks and 45 percent of Hispanics are confident they will have enough money to retire comfortably. The MRCS also shows that 54 percent of blacks and half of Hispanics say they have saved for retirement, compared with 69 percent of all workers.

More Participation Benefits All

While it's obvious to many how employees benefit from participation in pension plans, it's important to remember that employers also have a vested interest. Plan providers usually give companies a break on administrative fees when assets in the plan go up. In addition, highly compensated employees--whose maximum contributions to 401(k) plans are based on participation by non--highly compensated employees-get to contribute more.

The Cerulli Report series Market Update: The 401(k) Industry from Boston-based research and consulting firm Cerulli Associates, shows a flattening growth in new assets to 401(k) plans. The report adds that as the workforce begins to age, distributions are growing at a faster pace than contributions, currently at 74 cents distributed for every dollar contributed and expected to reach 83 cents distributed per dollar contributed by 2006. To increase assets in their 401(k) plans, companies will need to reach out to workers who aren't currently participating.

Dallas Salisbury, president and CEO of EBRI in Washington, D.C., believes that business has a stake in creating programs that help employees save for retirement simply because it eventually affects their bottom line.

"Most companies sell a product of some kind," says Salisbury, who is also a member of the Society for Human Resource Management's (SHRM) Board of Directors. "The retirement population right now is just 13 percent, but when baby boomers retire, that population increases to 23 percent. If tomorrow's retirees don't have money to spend, they won't be buying products."

Financial experts also point out that a large retirement population in poverty is sure to lead to social tensions, legal challenges and accusations, and increased taxes for the working population for social services costs.

Business may bear some of the blame for lack of retirement fund participation. "If you have legions of employees not participating in investment plans, questions will come up, such as were the materials adequate, and how good was the training?" says Mellody Hobson, president of Ariel Capital Management Inc./Ariel Mutual Funds in Chicago.

Issues Facing Black and Hispanic Employees

Surveys show that workers cite common reasons for not saving: They don't earn enough money or have too many demands on their incomes; they don't understand investing; or they plan to save "in the future."

However, cultural, economic and educational backgrounds may make it particularly difficult for minorities to believe they can invest for retirement.

Blacks and Hispanics statistically lag behind whites in salary and income, while their families tend to be larger. Census data show that 21 percent of black married families have five or more members, compared to 12 percent for their white counterparts. For families in which a Hispanic person was the head of the household, 30.6 percent consisted of five or more members. Hispanics who live in the United States but send money to relatives in another country may find their finances especially tight, according to experts.

Blacks and Hispanics also play a larger role in caring for elderly relatives, according to AARP's survey In the Middle: A Report on Multicultural Boomers Coping with Family and Aging Issues, which shows that 33 percent of Hispanics and 28 percent of blacks provide care for parents or other elderly relatives, as opposed to 19 percent of whites.

Attitudes about money also make a difference. After controlling for factors such as income, age, education, marital status, financial goals and financial obligations resulting from extended family, the 2001 Black Investor Survey, commissioned jointly by Ariel Mutual Funds and Charles Schwab & Co. Inc., found that blacks were still 35 percent less likely to be investors than whites.

"There are lots of drains on resources for African-Americans, who tend to look on investing as more of a luxury," says Hobson. "Blacks often think of investing as what we do after we take care of everything else, whereas whites treat it as part of what they have to do along with other obligations."