Plan sponsors finally have statistical proof that automatic enrollment can narrow the persistent racial gap in retirement savings. Unfortunately, other stats from the same research show that auto enrollment can widen the gap.
In a new study of seven large clients by Vanguard Group, those that automatically put new hires into a 401(k) plan increased the participation rate by more than 60 percent among black employees to 94 percent from 57 percent and by more than 40 percent among Latino employees, to 95 percent from 67 percent. As a result, the two groups statistically caught up with the rates of white and Asian employees.
This is another reason for introducing automatic enrollment if you havent offered it already, says Stephen Utkus, head of Vanguards Center for Retirement Research and a co-author of the study.
The catch is that the companies allocated an average of just 3.2 percent of employees paychecks to the 401(k)s, a typical amount in these automatic programs but far less than retirement experts say is needed. After enrollment, black and Latino employees pretty much stayed at the default level. However, white and Asian employees increased their allocations, widening the racial disparity again.
Automatic enrollment is a good step, says Pamela Hess, director of retirement research at consulting firm Aon Hewitt. But its not going to bridge the gap completely. ....