Over the past three decades, women have streamed into the workforce. Yet when they retire, they find themselves with roughly half as much in retirement savings as men.
It's an old disparity, but one that is now getting attention from the 401(k) industry even as the national debate about Social Security sparks renewed discussion about American retirement.
Recently much attention has been focused on a paper by Boston College's Center for Retirement Research that argues that the shift from defined benefit plans to 401(k)s has mostly been disadvantageous to women. The paper, published in January, points out that whereas defined benefit plans pay out an annuity, a 401(k) portfolio is a lump sum that, on average, has to stretch over a longer lifetime for women than for men. The differences between men's and women's savings and retirement needs were also highlighted in a January symposium on aging, sponsored by the Society of Actuaries.
The causes of the gender imbalance in retirement plan payouts are well known. Women earn, on average, less than 80 percent of what men earn and often move in and out of jobs so as to raise children; as such it is harder for them to save. Lower pay also means that the salary basis on which women's pension credits are calculated is smaller. As a group they are more dependent than men on Social Security, studies have shown.
Even compared with men who make equal salaries, women are less likely to participate in retirement plans and to allocate their assets to equities. According to Hewitt Associates' 2003 survey of 107 large companies, the typical 401(k) of female participants averages $42,660, just over half of male participants' average of $78,890. Women's skimpier 401(k) portfolios have to last longer than men's, too, because women live, on average, 5.5 years longer than men.
Plan sponsors and providers are increasingly trying to address the retirement needs of their female employees. Vanguard Group offers an education program targeted at female 401(k) participants; it focuses on financial basics and offers practical personal advice, such as how to invest postdivorce. In J.P. Morgan Retirement Plan Services' "Women and Investing" program, women gather in groups of 25 to 30 for two one-hour sessions, with discussions often delving into such issues as their attitudes toward money when they were children.
Since J.P. Morgan launched the program in 2000, the number of clients using it has grown "steadily," to about 10 percent of the firm's client base of 180 companies, reports Melissa Hooker, J.P. Morgan's chief client officer. She reports that clients that use the program typically see a 5 percent increase in 401(k) participation by female employees.
Reynolds and Reynolds Co., a Dayton, Ohiobased information services firm, decided to introduce the program this spring for the nearly 800 female employees at its headquarters. Although its $375 million 401(k) plan boasts an 80 percent participation rate, retirement services manager Becky Hodgin was worried about the national statistics showing a male-female retirement gap. (Reynolds doesn't break down participation by gender.)
Women enjoy some advantages over men in their retirement savings. Alicia Munnell, director of the Boston College retirement center, and Steven Sass, the center's associate director for research, argue in their January paper, "401(k) Plans and Women: A Good News/Bad News Story," that the advent of 401(k)s has been "better for short-tenured workers." They note that about 35 percent of women ages 45 to 49 have been in their current job for ten years or more, compared with almost 50 percent of men.
The Hewitt Associates survey suggests, moreover, that women contribute 0.7 percent more of their salaries than men do to 401(k)s. They also trade in and out of their portfolios less frequently (2.8 times a year, on average, versus 4.6), which lowers their annual expenses.