Employers may be the key to increasing retirement plan participation by workers–and closing racial and ethnic savings gaps.
A new study from T. Rowe Price found that while about half of all workers participate in a retirement plan of some kind, that number jumps considerably (88.2%) when a retirement plan is offered by an employer.
However, the racial and ethnic disparity is still glaring when it comes to retirement plan participation rates for those with or without access to an employer-sponsored plan. When looking at 21‑ to 64‑year‑old wage or salaried workers in the private sector, the average plan participation rate is about 50%. But the breakout between race and ethnicity participation rates tells a bleaker story: White: 57.7%; Asian: 54.9%; Black: 40.5%; Hispanic: 31.9%; and Mixed/other races: 42.5%.
Previous research from the global investment firm found Black and Latinx 401k savings rates are lower compared to their white counterparts. The median deferral rates were 5% and 8% for Black and Latinx participants, respectively, compared to 9% for white participants.
However, T. Rowe Price also noted that Black and Hispanic workers are lagging in plan participation and savings while facing a greater range of competing financial priorities.
And it all may come down to access.
There is a significant uptick in takeup rates, which are the percentage of workers who participate in plans to which they have access, when plans are offered by employers. According to the report, the average takeup rate is 88.2%, with participation by race and ethnicity tracking closely: White (90.4%), Black (81.6%), Hispanic (82.2%), Asian (89.9%) and Mixed/Other races (83.1%). Tellingly, more than 80% of Black and Hispanic participants rely on their workplace for financial advice.
“These findings highlight that the first and most important step toward closing the retirement savings gap is to expand access to retirement plans,” said Sudipto Banerjee, T. Rowe Price’s Vice President, Retirement Thought Leadership.
Other workplace influencers include that on average, minority workers earn significantly less than their white counterparts, which can drive the difference in plan participation rates. The two racial groups with the lowest retirement plan participation rates–Hispanics and Blacks–also have the largest share of their workers in the bottom two income groups.
Another significant retirement savings gap between whites and other minorities shows that while 38% of white participants say that they started saving for retirement before 30, only 18% of Blacks did the same.
The solution to close these gaps is relatively simple, according to T. Rowe’s Banerjee:
“The retirement industry can act now to help close the gap by encouraging employers to not only sponsor plans but to incorporate plan design levers, such as auto-enrollment and auto-escalation, and by offering financial wellness programs.”
T. Rowe Price’s new research is based on its annual Retirement Savings and Spending survey and analysis of the Census Bureau’s 2021 Current Population Survey.
Lynn Brackpool Giles is a contributing editor to 401(k) Specialist. Giles is a former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA), where she oversaw all corporate, legislative, and consumer communications. In her current journalistic practice, she is a frequent contributor to numerous financial services industry publications.
