401(k) Plans in Living ColorA Study of Savings DisparitiesAcross Racial and Ethnic Groups

2012 Ariel & Aon Hewitt Study

Erika D. IllianoAssociate Partner

Presented atNEEBC's 2014 Benefits Fair and Trade Show

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Backdrop to this Study

From 2000 to 2010, the Hispanic and Latino population of the United States grew by

43%In the same period, the non-

Hispanic or Latino population grew by less than 5%

Source: U.S. Census Bureau. And U.S. Census Bureau, The Hispanic Population: 2010 Census Brief

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Backdrop to this Study

From 2000 to 2010, the population of the United States who classify themselves as Black or African American

grew by over

15%The total population of the

United States grew by less than 10%

Source: U.S. Census Bureau. And U.S. Census Bureau, The Black Population: 2010 Census Brief

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Backdrop to this Study

From 2000 to 2010, the largest percentage growth among racial groups belonged to the Asian Americans at over

43%

Source: U.S. Census Bureau. And U.S. Census Bureau, Overview of Race and Hispanic Origin: 2010 Census Brief

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401(k) Plans in Living Color: The Ariel/Hewitt Study

Study sponsored by the Ariel Education Initiative and Aon Hewitt, with several partner organizations

Uncovered the relationship between race/ethnicity and 401(k) behaviors

Expanded data set and analysis covering: – Nearly 2.5 million employees – 60 participating employers

Includes employee perspective, with over 19,000 online responses focused on: – What is happening outside the plan– Plan knowledge– Perceptions on current and potential

initiatives

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Influencers of Individual 401(k) Plan Balances

Plan Balance

Participation

Savings Rates

Loans

Withdrawals

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Participation

AVG:72%

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Savings Rates

AVG:6.9%

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%

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Balances Vary By Race, Ethnicity and Pay

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Loans

AVG:29%

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Hardship Withdrawals

AVG:3.0%

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Perspectives on Leakage

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Differences Exist Even When All Else is Equal

Comparison between groups Actual African-Americans, Hispanics, and Asians stats vs. “adjusted” stats for Whites Results for Whites adjusted via regression to match each other group’s demographics

for comparison

10% lower9% lower

100% more

10% higher22% higher

same

15% less8% lower 4% lower

67% more

47% more

Participation Rate Contribution Rate Loan Hardship Withdrawal

African-American Asian-American Hispanic

276% more

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So How Do We Address the Disparities?

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Plan Design: Automatic Enrollment Helps Participation

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Increase in participation with auto enrollment

Impact offset by lower average contribution rates

African-Americans and Hispanics rates improve most

Anticipate that only ≈25% of employees would object to higher

default rates

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Plan Design: Automatic Enrollment Helps Participation

Enrollment Type White African-American Hispanic Asian

Subject to auto-enrollment 80% 79% 80% 83%

Not subject to auto-enrollment 50% 45% 41% 56%

Participation Rates of Those Subject to Auto Enrollment Among Those Earning Less than $30,000

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Outreach: Colorblind Strategy Evaluation

Driving better outcomes requires connecting employees to the benefits, tools, and resources already available

Workforce

Tools and Resources

Understand!

Guide!Promote!

Equip!

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To achieve desired outcomes, it’s critical to motivate and facilitate employee action

To be effective, communication must be simple―make it relevant, targeted, and actionable

Individuals learn in many ways―to truly engage, you need a multi-mediaapproach

AttitudesWhat matters to and motivates me?

GroupsWhere do I feel connected?

Demographics Who am I and where do I fit in?

BehaviorsWhat am I doing? Should I be doing?

Understand audience

perspectives to address

motivations and maximize ROI

Promote financial health through groups that are

relevant—businesses,

cohorts, networks

Recognize differences based on ethnicity, but also life stage,

generation, gender, and service

Understand current employee

behaviors in order to target initiatives

to improve outcomes

Outreach: Colorblind Retirement Segmentation

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Attitudinal segmentation brings consumer marketing principles to savings plan participant communication—and bridges racial and ethnic differences

Wealthy, knowledgeable,

expects later retirement

Getting Ready

Middle income, older,

good saver, values advice

Very Hopeful

Lower income, less

knowledge;wants

guidance

Show Me the Way

Wealthy, knowledgeable,

expects to retire early

Nearing the Finish

Lower income, discouraged,

needs to make ends

meet

All I Can Do

Young, upwardly mobile,

educated, financially

unsophisticated

I’ll Get There

Aon Hewitt’s SAVING Well Segmentation Model

Outreach: Colorblind Retirement Segmentation

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Characteristics Key Issues Approach

Show Me the Way

Behind on savings but willing to consider saving more

Know they need to do more

Low investment knowledge

Less active in their plans

How much can they afford to save?

How will they decide?

Avoid too many choices. Provide rules of thumb and simplified paths for taking action.

Focus on simple tools and resources to start

All ICan Do

Low investment knowledge/confidence

Day-to-day expenses take priority—feel they can’t afford to save

Do not value investment advice due to inability to save

Inactive in their plans

How do they find money to save?

How will they decide where to save/invest?

Consider/emphasize auto-enrollment and auto-escalation with default options

Use testimonials from others in similar circumstances

Focus on budgeting skills

A Closer Look at SAVING Well Segmentation

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Provide rules of thumb to help them determine levels

Focus on simple tools and/or options related to investment choice

I’ll Get There

Younger and well-educated (average age is about 33)

Know they need to do more and are increasing contributions

Do less forecasting and specific planning

Savings plan is important to them

How do they sustain contribution and related increases?

How do they know how much is enough?

How are they making investment decisions?

Very Hopeful

Currently saving but they know they need to do more

Less active in their plans

Value advice and encouragement from employer

Are they keeping up with changes to their situation?

Do they recognize potential shortfalls in DB and Social Security?

Consider auto-escalation and auto-rebalancing

Provide rules of thumb related to retirement readiness and integrated views of assets across plans

Characteristics Key Issues Approach

A Closer Look at SAVING Well Segmentation

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Getting Ready

Well on their way Feel confident in their

retirement planning and knowledge

Expect to retire after age 70

Overconfidence, perhaps? Have they thought

about not being able to work at older age or type of work?

Frame issues using loss aversion

Focus on more comprehensive tools and income solutions

Frame issues using loss aversion

Focus on more comprehensive tools and income solutions

Well on their way Feel confident in their

retirement planning and knowledge

Expect to retire before age 65, though still can be years from retirement

Will they have enough for retirement? Pension may be playing a role?

Have they thought about what it means to be managing retirement income risks (longevity, investment, inflation)?

Nearing the Finish

Characteristics Key Issues Approach

A Closer Look at SAVING Well Segmentation

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Leverage, enhance, and supplement current tools and resources

Financial Well-Being HubHave a place employees can go to access all resources

Advice/Managed Accounts Offer resources to help employees make decisions

Online Learning Consider online resources for employees to access

Individual Support Meetings and one-on-one planning support

Tools for a Diverse Workforce

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Study Partners

Ariel Education Initiative and Ariel Investments, LLC: Ariel Education Initiative, the nonprofit affiliate of Ariel Investments, was founded in 1989 by John W. Rogers, Jr. (founder and chairman of Ariel Investments, LLC) as a private operating foundation with a mission to strengthen the neighborhoods and cities in which we live and work. Ariel Investments is a Chicago-based money management firm and mutual fund company that serves individual investors through its no-load mutual funds and manages separate accounts for institutional clients.

Aon Hewitt: Aon Hewitt is the global leader in human resource consulting and outsourcing solutions. The company partners with organizations to solve their most complex benefits, talent and related financial challenges, and improve business performance. Aon Hewitt designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies. With more than 29,000 professionals in 90 countries, Aon Hewitt makes the world a better place to work for clients and their employees. For more information on Aon Hewitt, please visit www.aonhewitt.com.

The Joint Center on Political and Economic Studies is the nation’s leading African-American think tank and is focused on political, economic, and health issues.

The Raben Group is a D.C.-based public affairs organization. The Raben Group assists non-profit, foundation, and corporate clients with a variety of services ranging from strategic planning to policy development to strategic communications.

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