Recession Expected to Further Weaken Latinos’ Already Low Retirement Savings

An analysis released today by NCLR (National Council of La Raza), the largest national Hispanic civil rights and advocacy organization in the United States, highlights that the recession can only deepen the alarmingly low retirement savings rate of Latino workers. Insecure Retirements: Latino Participation in 401(k) Plans explains that, even in the best of times, employer-sponsored 401(k) retirement plans do not serve Latino workers well. Only one-third of Latinos work for companies that offer retirement savings programs; they are less likely than Whites to participate in 401(k) plans and more likely to take out loans against their retirement savings, trends that are expected to grow as the recession and high unemployment continue.

“Latinos are a key part of our workforce, but most have had little opportunity to save for the future. Only one-third of Latino workers are offered a 401(k) plan, and it is primarily young and low-income workers who are left out of any retirement savings program. We expect high unemployment to make things even worse. Until more companies offer retirement plans and automatically enroll their employees, retirement savings will take a backseat as workers focus on putting food on the table today rather than saving for tomorrow,” said Eric Rodriguez, NCLR Vice President, Office of Research, Advocacy, and Legislation.

The report identifies the main issues that affect retirement savings rates among Latinos:

* Low access to retirement programs. Two out of three Latinos (65%) lack access to an employer-sponsored retirement savings plan. Many Latinos work for small, private companies or in industries—such as construction, hospitality, and maintenance—where retirement savings plans are not commonly offered. Also, some workers have jobs that are excluded from company retirement programs.
* Lower participation and savings. Hispanics who are offered a retirement savings plan have a participation and savings rate that is 6% lower than that of Whites. The design of the retirement plan affects their participation; companies that automatically enroll employees into a plan typically have greater participation than those who rely on employee initiative to enroll. Latino workers tend to be low-income and young, those whom studies show are the least likely to enroll in 401(k) plans and benefit the most from automatic enrollment.
* Higher use of early withdrawals and loans against their 401(k) plans. Latinos who have access to 401(k) plans are much more likely than Whites to have outstanding loans against their plans, which puts them at risk of a permanent reduction in retirement savings. A 2007 survey of workers found that 25% of Latinos needed to take money out of personal or retirement savings to pay for a medical expense.

“The Latino middle class is clearly showing signs of economic distress that will likely worsen through the recession. We are concerned that these upwardly mobile workers who are trying to invest in their future often have to tap 401(k) funds when they lose their jobs or need to pay medical bills. Our nation should make it easier for everyone to save and plan for some financial security during old age,” said Rodriguez.

NCLR recommends boosting the retirement savings of Latinos by requiring all companies to offer employees some type of retirement program and enroll them in it automatically, an effective way to increase participation levels and savings. NCLR supports consideration of new ideas, including extending payback periods for loans against 401(k) plans, making these loans portable, and requiring companies to offer automatic individual retirement accounts (IRAs) to all employees. Another measure to consider is for the government to provide matching funds for low- to middle-income workers who save for retirement.

Latinos are the fastest-growing segment of the U.S. population and workforce. They currently compose 14% of the workforce and are expected to make up one-third of the workforce by 2050. Latinos are also much younger on average than the population of the country as a whole—28 years of age compared to 37. The Hispanic unemployment rate was at 12.7% as of November 2009. Insecure Retirements: Latino Participation in 401(k) Plans is available at www.nclr.org.”

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