Retirement Planning Success Requires Planting the Seeds

Stacy Betz, center, Mariani Enterprises Inc.’s human resources director, stands in a fall annuals greenhouse with some of the company’s workers.
 

Employees at one of the three companies owned by Mariani Enterprises Inc. have a good option when it comes to saving for retirement. The 401(k) plan is open to everyone, and at the end of the year, the nationally recognized landscaping group makes a matching contribution anywhere from 6 to 10 percent of worker pay, depending upon company performance.

Last year, Mariani matched up to 7 percent of pay, so anyone who contributed at least that much from their own paycheck could sock away the equivalent of 14 percent of their pay into a 401(k) plan. But barely any of its workers took advantage of the free money — including the 65 percent of its Latino workforce.

“The participation is alarmingly low,” among minority workers, said Stacy Betz, Mariani’s human resources director. “There is something about that commitment that seems bothersome.”

‘It does make us extremely concerned because it is evident that they still don’t understand the intent of the plan. I don’t know what the barrier is because we have done significant education.’

—Stacy Betz, Mariani Enterprises, 
a landscaping company
 

Less than half of Mariani’s Latino workforce participates in the plan, and most who do use it as a savings account when the company suspends employment during the winter when summer lawn maintenance season is over, Betz said.

Improving retirement outcomes for minorities has been a back burner issue for years. The emerging number of unprepared minorities and the projected growth of Latino and African-American populations over time may wind up becoming a crisis if nothing is done, warns Keith Green, president of the American Retirement Initiative, an industry group aimed at improving retirement outcomes for all workers.

“It is one of the biggest domestic public policy issues of our time,” Green said. “There is a lot to do in a short periodof time. What are we going to do 20 years from now when these people can’t retire?”

Mariani, based in Lake Bluff, Illinois, and ranked as the nation’s 33rd-largest landscaping firm by Landscape Managementmagazine, allows workers one loan to take out half of what is in their account and need to pay it back before becoming eligible for a loan again.

Mariani also does its part in helping workers understand benefits. Betz is available to answer questions, and the company holds bilingual informational sessions on benefits twice a year. It also has a financial adviser come in monthly to aid all employees with money-making decisions, but with the exception of the mandatory informational sessions, few minority workers take advantage of the additional help.

“We give them calculators and show them what their paycheck would look like if 2 percent or 3 percent were deducted, for example,” Betz said. “It does make us extremely concerned because it is evident that they still don’t understand the intent of the plan. I don’t know what the barrier is because we have done significant education.”

Falling Behind

Overall, study after study has shown that many Americans are not saving enough for retirement, and that most minority groups are well behind that average. Earlier this year, The Urban Institute analyzed 2013 U.S. household data gathered by the Federal Reserve and found that Latinos and African-Americans are in worse shape in terms of saving for retirement, largely because they have less wealth than their white counterparts.

Signe-Mary McKernan, author of the analysis and senior fellow at The Urban Institute said wealth was important because it represented family assets like savings and real estate, and it has served as a backstop for emergencies as well as a door to moving up the economic ladder. The analysis showed wealth inequality among different groups in the United States has only grown larger over the past 50 years. In 1963, the average white family had $117,000 (converted to 2013 dollars) more wealth than nonwhite families. By 2013, that number has climbed to $500,000.

“If you are worried about rent and paying the next electric bill, retirement isn’t something you can worry about,” Green said.

When there is little wealth, there is even less room to save for retirement, McKernan said. White families hadseven to 11 times more in average liquid retirement savings than African-American or Latino families.

“It’s all interrelated,” McKernan said. “The majority of people of color are not on a firm wealth-building path, and the fact that it hasn’t improved is a problem we have to pay attention to.”

In addition to the wealth gap, access to retirement plans at the workplace has been a major contributor to low savings rates among Latinos and African-Americans. About 62 percent of white workers have a retirement plan on the job compared with 54 percent of African-American workers, and 38 percent of Latino workers, according to 2013 study by the National Institute on Retirement Security.

The savings numbers are lacking, too. Three-quarters of African-American families and 80 percent of Hispanic families have less than $10,000 in retirement savings compared with half of white families. What’s more alarming is that nearly two-thirds of minority households have no savings in an individual retirement account or 401(k), NIRS data show.

MassMutual’s Money
Makeover for Minorities
Managing finances can be intimidating to anyone, but it can be particularly difficult if it’s in a language you don’t speak or don’t speak fluently. MassMutual Financial Group attempted to diffuse the mystery behind financial planning by hosting a free three-hour workshop in Houston in June to help Latino families understand how to manage their money and plan for long-term goals.
The company partnered with Univision Communications Inc., the leading media company serving Spanish-speaking Americans. Presentations included sessions in Spanish on budgeting, saving for college and retirement. Participants also had access to bilingual financial professionals to help answer individual questions and issues.
“It confirmed our notion that there is a need for information,” said Chris Mendoza, director of Latino markets at Mass Mutual. “This gave us an opportunity to talk about financial education basics.”
—Patty Kujawa
 

The retirement issues facing minorities in America aren’t new, and while they haven’t gone unnoticed, there’s an entire generation catching much of the attention, Green said.

“The interest is millennials, not African-Americans or people of color,” Green said. “Part of the challenge is that this isn’t the target market for most big providers. People barely saving are not a core market.”

In the Year 2060 …

But there’s a sleeper issue: non-Hispanic whites, the current majority group in America, is expected to dip to 44 percent of the population by 2060 when the country is expected to have no single group in the majority spot. Overall, population growth is expected to slow by 2060, but the Latino population is likely to increase 116 percent, doubling to 119 million from 55 million in 2014, U.S. Census Bureau figures show. African-Americans should increase in numbers as well, rising to 60 million in 2060 from 42 million in 2014.

A growing populace that is historically not saving for retirement can hamstring the workforce overall, said Joe Ready, executive vice president and director of Wells Fargo Institutional Retirement and Trust.

“The average age of the workforce is creeping up, and people are putting off retiring in general,” Ready said. “When people are financially strained, they are not as engaged in the workplace.”

Acting on solutions that can help minorities become better savers can adjust the health of all retirement accounts, said Catherine Singley Harvey, program manager for the economic and employment policy project at the National Council of La Raza.

“Targeting solutions that impact retirement savings among Latinos can turn the tide on the national retirement crisis,” Harvey said.

For workers with access to plans, features like automatic enrollment into professionally managed accounts such as target-date funds and automatic annual increases in employee contributions can greatly change outcomes, experts agree.

The Vanguard Group Inc. studied seven large defined contribution plans and found that 92 percent of Latinos participated when automatically enrolled compared with 68 percent who enrolled on their own. For African-Americans, 90 percent started accounts with auto features compared with 59 percent who signed up. In total, there was a 20 percentage point difference among all employees who were automatically enrolled (93 percent) vs. regular registration (73 percent).

Auto features are efficient not only from a participation standpoint, but also from an investment strategy as well, said Cynthia Pagliaro, a senior research analyst at Vanguard. The company’s data show that 89 percent of Latinos and 88 percent of African-American participants who were automatically enrolled were put into a professionally managed target-date fund.

That means the investment choices and risk levels were no longer a guessing game; they were appropriate for the worker’s age and self-adjusted over time. For workers who sign up on their own, only 23 percent of Latinos and 21 percent of African-Americans chose target-date funds. 

“We call auto features the great equalizers,” Pagliaro said. “These are powerful tools to mitigate differences in outcomes.”

Reader Reaction
Are employers doing enough to encourage minority employees to save for retirement?
@WorkExpBlog: 
They should encourage ALL workers to save for retirement.
@LKNavy: 
I like having the retirement program as an automatic that you must choose to opt out. If they drop, schedule counseling.
 
Sylvia Perez: 
It is essential that new immigrants as well as young people who enter the workforce understand the importance of saving for their retirement. Times have greatly changed since the time when individuals retired with full pensions and medical benefits. Employees need to take control of their future or the end result can be a dire situation.

What do you think? Join the discussion at tinyurl.com/HRMinorityReport or follow us on Twitter @Workforcenews.
 

Some states are also toying with automatically putting workers into plans if none is available at the workplace. California, Connecticut, Illinois and Oregon are working on strategies that would automatically put workers (at small businesses with no company-run retirement option) into state-run plans or other types of individual retirement accounts. Typical ideas include auto savings at 3 percent of pay.

More than 6 million private-sector employees in California don’t have access to a company retirement plan, and 64 percent of those are minority workers, state records show.

“If California can get this right, it will create a significant model for the country,” Harvey said.

Meanwhile, technology advances are helping plan sponsors look more closely at workforces to identify savings gaps in retirement plans.

“If you have ethnicity data, it can be really valuable in terms of how to implement plans,” said Wells Fargo’s Ready. “We are continuing to add pieces to the puzzle, so we can learn how to better communicate and help people make better decisions.”

Defined contribution record-keepers like Wells Fargo can look at the 401(k) information companies provide such as gender, age, ethnicity, participation and contribution rates to pinpoint problem areas.

Wells Fargo works with companies to identify what they call plan champions, people who can serve as the go-to person for workers who may not be comfortable going to the human resources director or other traditional outlets for help.

In a 2014 survey of 528 Latino investors, Wells Fargo found that 72 percent want to know more about investing and that 35 percent of respondents ages 25 to 39 said they were more comfortable working with a Latino financial professional.

“Hispanics are very willing to take advice from atrusted friend or relative,” Ready said. “We started the plan champion idea to help engage peers. We are just beginning to do this and see a real opportunity.”

MassMutual Financial Group has used its technology to help companies with large Latino workforces develop effective communication campaigns in English and Spanish. The company has a Spanish-language website and uses multimedia approaches in both languages for clients, including Web-based education, direct mail and one-on-one sessions.

“Retirement shouldn’t be a mystery,” said Chris Mendoza, director of Latino markets for MassMutual. “People shy away from it because there is a lack of information in their language, and they don’t know where to start.”