Winter 2008

Study Examines Differences by Ethnicity Among Retirement Plan Participants

By Great-West Retirement Services

In one of the first studies of its kind, Great-West Retirement Services® recently outlined differences in savings behavior among participants of various ethnic groups enrolled in workplace defined contribution (DC) savings plans. The study found significant differences in savings behavior among White, African-American, Hispanic and Asian participants.

The study, a result of a longstanding association with Ariel Capital Management, LLC, encompassed a sampling of more than 20,000 active participants on Great-West Retirement Services' DC recordkeeping system. Participants had reported their ethnicity to their respective employers.

Results of the survey were presented at the Ariel-Schwab Black Investor Summit in New York, sponsored by Ariel Mutual Funds and The Charles Schwab Corporation.

"While we found many similarities among the ethnic groups studied, there were areas where the savings behavior of some groups was potentially less conducive to achieving retirement security than that of other groups," said Charles Nelson, senior vice president of Great-West Retirement Services.

For example, the study revealed:

  • Measurable differences existed in average deferral rates by ethnicity.
    • The 1.9 percent deferral rate of African-American males was 58 percent less than the 4.5 percent deferral rate of White males - contributing to account balances that on average were 75 percent less for African-American males than for White males.
    • At 5.9 percent, Asian participants had the highest deferral rate.
  • On average, African-American participants held the least-diversified plan investments, using just 1.7 investment options, and Hispanic participants were the most diversified, using 3.8 options, based on an average of 21 available options.
  • White participants were three times more likely than African-American participants to roll their DC plan assets to an IRA or another qualified plan (35 percent versus 11 percent respectively) when taking distributions.
  • Hispanic participants took more loans from their DC plan (24 percent) than any other group.

Nelson said Great-West Retirement Services conducted this initial study of ethnic savings behavior because "we believe that a one-size-fits-all approach to retirement savings may not be optimal with America's multi-ethnic population. The retirement plan industry, including service providers, plan sponsors and consultants, needs to understand the differences in ethnic utilization of DC plans and to tailor their products and services to meet the needs of all employees."

Nelson said, "We are taking the lead and will begin publishing an annual study on trends in retirement plan activities and utilization by various ethnic groups." He noted that Great-West Retirement Services will begin work in 2008 to allow all of its plan sponsor clients, including those in government markets, to submit ethnicity information and will include that data in the annual plan reviews it conducts with clients.

Gregg Seller, senior vice president of government markets for Great-West Retirement Services, said, "We see this initiative as the start of a process to create a dialogue among all interested parties so we can begin to address the differences that may have an impact on the retirement security of all government workers enrolled in DC plans, regardless of their ethnicity." He said governmental plan sponsors have asked to participate in the 2008 survey.

Seller added, "Behavior by ethnicity permits us to add further depth to our Four Dimension program, including better target marketing and outreach initiatives." He noted the Four Dimension service model, introduced two years ago, measures participation, asset allocation, education, and retiree outreach as key elements of each plan that may be benchmarked against other similar plans.

The Great-West Retirement Services study was conducted by an independent marketing firm, KK and Company, using data from July 1, 2006, to June 30, 2007. Participants studied had an account balance in a 401(k) or 403(b) plan. Participants of 457 plans will be included in future studies.

About Great-West Retirement Services
Great-West Retirement Services, a business unit of Great-West Life & Annuity Insurance Company, is the fourth-largest retirement plan record keeper in the United States, based on total participants, according to a ranking by Spectrem Group in January 2007. In all, Great-West Retirement Services provides 401(k), 401(a), 403(b) and 457 retirement plan services to 21,000 plans representing more than 3.4 million participants and $104 billion in assets at Dec. 31, 2006.

Great-West Life & Annuity Insurance Company, headquartered in metro Denver, serves its customers through a full range of retirement savings products and services, annuities, life and disability insurance and health care plans. It is an indirect, wholly owned subsidiary of Great-West Lifeco Inc. and a member of the Power Financial Corporation group of companies.