There is growing body of research demonstrating that underrepresented American workers, in particular Black and Hispanic workers, have lower retirement plan participation rates compared to white American workers. I recently explored this concept in newly released research using data from the Annual Social and Economic Supplement to the 2023 Current Population Survey (CPS).
The analysis indicates clear differences in retirement plan participation rates by race and ethnicity. For example, Asian workers have the highest participation rates (64.1% among all workers and 92.5% among those with access to a retirement plan), followed by white workers (61.7% and 92.2%, respectively), then Black workers (54.0% and 88.0%, respectively), and finally Hispanic workers (42.1% and 85.4%, respectively). The retirement plan participation rates of Black and Hispanic workers are notably below the average.
What is not clear, though, is the extent to which other variables such as employer size or demographics like income or education level could be driving these differences in participation rates. For example, workers with higher income, higher education levels, who work for larger employers, are much more likely to participate in a retirement plan. Therefore, retirement plan participation rates could be due to differences in incomes, not race or ethnicity.
To better understand how variables like demographics are related to workplace retirement plan participation I run a series of regressions, which allows me to isolate the impact certain factors (i.e., race/ethnicity) have on access and retirement plan participation while controlling for differences in gender, marital status, age, income, employer size, education level, industry, and occupation. The chart below includes the coefficients for the race and ethnicity variables; you can see the complete regression results in Appendix 1 of the paper.
The regression coefficients for the race/ethnicity variables provide context on how each of the three dependent variables (access to retirement plan, retirement plan participation for all workers, and retirement plan participation among only those with access to a workplace plan) are related to race or ethnicity while controlling for all the other variables considered (e.g., income, age, etc.).
The analysis provides relatively strong evidence that when all other attributes are equal (e.g., income, age, industry), differences still exist both in terms of general access to retirement plans and plan participation, whereby Black, Asian, and Hispanic workers were:
- Significantly less likely to report having access to a plan.
- Significantly less likely to participate in the retirement plan.
While retirement plan participation rates tighten when focusing only on those workers who note access to a workplace retirement plan, there is still a clear gap when compared to white workers.
Interestingly, while Asian workers have higher average retirement plan participation rates than white workers in the aggregate (see the first chart), participation rates are actually lower when the other variables are controlled for (in the regression, second chart). This is why controlling for other variables through a regression can be especially useful because it can reveal important differences that would otherwise be masked by focusing just on overall averages.
Saving in workplace retirement plans is becoming increasingly important given the shift away from defined benefit (DB) plans to defined contribution (DC) plans among employers. This analysis suggests that underrepresented American workers face a unique set of barriers to retirement success that need to be addressed. While there are a number of potential solutions that could bring more parity across the racial and ethnicity groups, such as an increased focus on offering retirement plans (especially among smaller employers) and designing plans to increase participation (e.g., automatically enrolling workers), it will likely take a collection of steps to meaningfully close the retirement plan participation gap to ensure all Americans have equal access to a retirement plan.
MORE FROM DAVID BLANCHETT:
• Employers: One Way to Break Through the Barriers to Financial Help?
• What to Consider When Contemplating an Annuity for a Defined Contribution Plan
SEE ALSO:
• Bridging the Gap: Staring Down the Retirement Industry’s Biggest Challenge
• Black Americans Remain Positive Despite Financial Anxieties
• Half of Hispanics ‘Very Worried’ About Their Retirement Security
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David Blanchett, PhD, CFA, CFP, is Managing Director and Head of Retirement Research, DC Solutions for PGIM, the global investment management business of Prudential Financial, Inc. In this role, he develops research and innovative solutions to help improve retirement outcomes for investors. He is also an Adjunct Professor of Wealth Management at The American College of Financial Services and a Research Fellow at the Alliance for Lifetime Income.
