Latinos are the fastest-growing segment of the U.S. work force but are also among the least inclined to take advantage of employer-sponsored retirement plans, and that poses problems for plan providers.

The demographics say the Latino 401(k) market should be big business for plan providers. Yet the Latino population remains elusive, sitting on the sidelines more than whites or Asians when such plans are offered, and dipping into their 401(k) for loans, which significantly reduces their retirement savings.

"Latinos are a key part of our work force, but most have had little opportunity to save for the future," said Eric Rodriguez, a vice president in the Office of Research, Advocacy and Legislation at the National Council of La Raza, the largest national Hispanic civil rights and advocacy organization. "We expect high unemployment to make things even worse. Until more companies offer retirement plans and automatically enroll their employees, retirement saving will take a back seat as workers focus on putting food on the table today rather than saving for tomorrow."

Latinos make up 14% of the U.S. work force and are projected to be one-third of it by 2050, according to "Insecure Retirements: Latino Participation in 401(k) Plans," a report the council released last week. The report also shows that when employees are automatically enrolled, their savings rates jump from 20% to 80%.

But auto-enrollment has its limitations.

It works only when the participants view the plan as aligned with their own goals, said David Wray, president of the Profit Sharing/401k Council of America, a Chicago-based association of providers of 401(k)s and other profit-sharing plans. Just having a default, auto-enrollment retirement savings plan is not sufficient if it is not coupled with "an aggressive education effort where the company goes and explains to participants in advance how important it is to save and why it is in their best interest."

When participants do not understand why they should enroll, or in some cases don't even know they are enrolled in retirement savings plans, inefficiencies and expense can result. Wray uses the example of McDonald's, the first company to use auto-enrollment, in the 1980s, which terminated the program in 2000 because of the large number of small, unclaimed balances in its plan, which made them economically unviable. Now McDonald's has a combination-plan arrangement, where they auto-enroll everyone except restaurant crews and provide a generous match, which gives the store employees an incentive to enroll.

To get higher participation and savings rates, companies should be communicating with employees in their own language, Wray explained. One-on-one counseling is another effective way to enroll more Latino and low-income participants. The problem is that for a lot of companies it is not practical to meet face to face with potential participants because of the cost and the time, especially for companies with multiple locations.

"If anyone is poised to capitalize on the Latino 401(k) marketplace, it's the insurance companies," said Mike Alfred, the chief executive of BrightScope, an independent provider of 401(k) ratings and financial intelligence to plan sponsors, advisers and participants. Insurance companies provide more services, even though they charge more, and they offer language support — "one of the key things you need to break into the Latino market," Alfred said.

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