January 19, 2012
Women Crave More Information
It’s common knowledge that women save less in their retirement plans than men do. This is a major problem, because they live longer, are more likely to require nursing home care, and need more money.
To learn why women save less, Karen Holden and Sara Kock at the University of Wisconsin, Madison, recently conducted focus groups with state employees and analyzed data for the Wisconsin Deferred Compensation Program. Similar to a 401k, the program for Wisconsin government workers also allows tax-deductible, voluntary contributions, though there is no employer match. Squared Away interviewed Holden about their findings.
Q: First, how do men’s and women’s balances in the Wisconsin program compare?
Holden: It is consistent over time for participants: women’s balances are on average about 70 percent of men’s. In 2009, the latest year for which we have data on all contributing employees, women’s accounts were $40,071 on average, compared with $55,155 for men. [State employees are also covered by a defined-benefit plan.]
Q: Do women save less, because they earn less?
Holden: Average lower earnings are a factor but more surprising is that, at any specific salary level, women contribute a lower percentage of their earnings than do men. Women on average contribute 6.28 percent of gross pay, compared with 7.03 percent for men. While lower pay and age differences accounted for some of that, being a woman led to lower contribution rates.
In the focus groups, when we asked these women why they have lower account balances, they all said, “I don’t believe we do.” They said they are all working full-time and committed to retirement security, and they probed us for evidence that women in their situation have lower balances. So women themselves don’t see the difference in behavior, but it is there.
Q: Why is this important?
Holden: Over time, smaller contributions result in much smaller accumulations when employees retire. If women are contributing less in jobs where they’re paid equally to men, the question is what else is going on? Are women more myopic than men? Our focus groups don’t indicate that. Are women misinformed about their longer lives, or is it that when they come into a job, women may not be given as much information? Maybe the human resources system encourages men, or maybe men come in more aware of the importance of retirement saving. Perhaps one needs to make sure women make choices appropriately.
Q: What’s the answer?
Holden: Women in the focus groups argued that the information they receive may be inadequate, especially when they first become eligible to contribute. I don’t know whether this is due to a history of women being less educated about business affairs. But the women felt there were ways they could be encouraged to participate sooner after becoming eligible.
Q: Don’t women get their information from the same sources as men?
Holden: One thing that came out of the focus groups that was surprising was how important co-workers were to making choices. Women repeatedly said they had a coworker who kept insisting, when they met in the hall, “Have you enrolled yet?” Some got basic information from their coworkers, while others said they were badgered by coworkers who said it’s really dumb if you’re not enrolled in this.
Q: Do women contribute the maximum the program allows?
Holden: Women were less likely to make the maximum contribution. In 2009, at the highest wage where you think people could afford it, 11 percent of men made the maximum contribution and 9.7 percent of women made it. And when we controlled for salary and age, women were 20 percent less likely to contribute the maximum allowed.
Q: How did women react to the 2008 stock market crash, compared with men?
Holden: We didn’t have really good data on this, but we do know that women are more likely to be in a limited number of funds. This means they are probably less likely to have large losses but also were less likely to earn high returns when the stock market recovered, as it has a little bit.
There were two groups of women: one group was a little more aware and said, “We just quit looking at our accounts, because we knew we had to just keep our money where it was until the market recovered.” Women in the other group said, “I couldn’t stand it and I pulled my money out and went into the low-growth default funds.” Both groups said, “We wish that we had had more information about what to do.”
Q: What else came out of your focus groups?
Holden: Some suggested one reason women don’t contribute is because these are family accounts. But that’s not what came out in the focus groups. Women saw their funds as a way for them to secure their own retirement. If there’s an inherent reason for women having lower account balances, it’s not because they aren’t worried about their futures or think they are going to be taken care of. These women really did understand the importance of having a secure retirement, whether they are married or single. They really feel these are their accounts to manage but some of them just don’t know how to manage them. They admit it, and it’s been a process over time for them to come to that point.
Another thing that came out in the focus groups is that when someone is hired in a state position, they’re inundated with materials on benefit programs, such as health care and life insurance. You can’t delay making those choices, and they put aside supplemental retirement plan decisions. Then it’s forgotten. It’s probably better to remind them six months after they become eligible to participate.