Blacks' Retirement Security at Risk

John Roper listens during a class at the Ariel Community Academy in Chicago, Tuesday, Oct. 9, 2007. The school, sponsored by an African-American mutual fund company, gives kids real money to invest as a class that they collect when they graduate. (AP Photo/Charles Rex Arbogast) (Charles Rex Arbogast - AP)

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."