The economic turmoil of the past four years has taken its toll on U.S. employee retirement plans, but 401(k) accounts held by certain minority groups have been particularly stressed, according to a report by Chicago-based Aon Corp. released April 3.
A survey of 60 large U.S. firms—conducted jointly between Aon and Chicago-based Ariel Investments L.L.C.—revealed that African-American employees took hardship withdrawals from their defined contribution plans at a much higher rate than white, Hispanic and Asian-American employees.
More than 8 percent of African-American employees at companies surveyed took hardship withdrawals from their 401(k) plans in 2010, while 3.2 percent of Hispanic employees, 1.7 percent of white employees and 1.2 percent of Asian-American employees made similar withdrawals.
Among the employees who reported pulling money out of their retirement savings, two-thirds indicated they needed the cash for an emergency, debt or day-to-day living expenses.
Minority workers also were more likely to still carry the debt incurred from loans taken against their 401(k) plans in 2010, the report indicated. Nearly 50 percent of African-American employees and 40 percent of Hispanic employees had outstanding loans against their retirement plans, compared with 22 percent of Asian-Americans and 26 percent of whites.
"The Great Recession caused many employees to tap into their 401(k) plan," Mellody Hobson, president of Ariel Investments, said April 3 in a statement. "This has been especially true of African-American and Hispanic workers, who have been hit the hardest by the recession. Since 401(k) plans have become the primary way Americans save for their golden years, this study dramatically shows how much is at stake."
The survey noted a rise in the number of workers cashing out their retirement savings upon leaving an employer, especially among minority employees. Almost two-thirds of African-American employees and 57 percent of Hispanic employees cashed out their 401(k) accounts when leaving an employer in 2010, whereas only 39 percent of white employees and 34 percent of Asian-American workers did the same.
One explanation for the disparity in economic impact on retirement savings, Hobson said, could be that minority workers have been disproportionately affected by layoffs since the start of 2008.
"Most employees who cash out their savings will never be able to rebuild their balance," Hobson said. They "feel like they have no choice other than drain their retirement savings in order to make ends meet while unemployed."