Retirement readiness is often a top concern for higher education plan sponsors, but employees at historically Black colleges and universities face distinct challenges when it comes to preparing for retirement.

A new research study conducted by the TIAA Institute concluded that lower participation rates in supplemental retirement savings plans, lower average contribution amounts, conservative investment allocations and an increased number of plan loans have resulted in lower plan balances for HBCU employees.

According to TIAA, the historic focus and mission of HBCUs is to educate Black Americans. In 2021, the 99 four-year HBCUs educated 287,000 students, 75% of whom were Black. A majority of HBCU employees are also Black, and 75% are non-white.

Using administrative data from 2022, TIAA compared participants at HBCUs to those at all four-year colleges and universities, as well as those at a “peer group” of institutions.

Low Participation, Contribution Levels

Typically, full-time higher education employees have access to both a primary and supplemental workplace retirement plan—the primary usually funded by employer contributions, occasionally augmented by employee contributions, and the secondary allowing employees to voluntary contribute.

At public institutions, higher education employees often have the option to also participate in either a primary defined benefit plan or a primary defined contribution plan.

TIAA found that HBCU employees at private institutions are significantly more likely to contribute to both types of plans, compared with HBCU participants at public institutions. Among all groups, public HBCU participants are least likely to contribute to both plans, with only about one in eight making a supplemental plan contribution.

The reasons for these differences include differences in employer contribution rates, pay differentials and employee liquidity constraints, TIAA cited.

In addition, when comparing HBCUs to non-HBCU peer institutions, mean contributions were 16% smaller ($1,400) at private schools and 30% smaller ($3,100) at public schools. However, for public institutions, the difference between participants at HBCUs and at peer institutions was driven almost entirely by greater employer contributions ($2,300 more) and not employee contributions ($139 more).

Shelly-Ann Eweka, senior director of research and strategic program initiatives at the TIAA Institute, says plan sponsors can help improve engagement by ensuring that employees have access to financial advisers to improve their financial literacy.

“Two great places to really improve that engagement is [communicate with] new hires right when [they are] onboarded,” Eweka says. “[Plan sponsors should] make sure they’re taking advantage of that onboarding opportunity to get those new hires engaged in not just participating in the plan, but [also] taking advantage of advice sessions and open enrollment. Those two time periods are the periods where plan sponsors can really emphasize taking advantage of and increasing their contributions.”

Conservative Investment Allocations

As with most participants contributing to a workplace plan, a majority of HBCU employees are invested in target-date funds and, for the most part, set their contribution allocation once and never change it, according to TIAA.

Overall, HBCU employees tended to have greater asset allocations to TDFs, compared with other higher education employees.

However, looking at non-TDF allocations, TIAA found that HBCU participants have 54% of their remaining portfolio in equities, compared with 68% of other higher education employees.

“Because low equity exposure can inhibit long-term cumulative returns and reduce assets available at retirement, the strong uptake of TDFs by newer HBCU participants may provide better retirement outcomes relative to longer-tenured HBCU participants,” the report stated.

The report also showed that HBCU participants were more likely to seek retirement income advice than investment advice.

“It could be for many reasons,” Eweka says. “Considering they do have lower accumulations, they have a good understanding of longevity literacy and know that they need to get that retirement income for themselves.”

Retirement Plan Leakage

While taking out a loan from a retirement plan provides a certain amount of liquidity to participants, allowing a participant to borrow a fraction of their accumulated balance and then repay the loan over a specified time and interest rate can be damaging to one’s retirement security.

“[Taking out a loan] absolutely can impact your savings, because that money has to be paid back, and that comes out of your paycheck,” Eweka says. “The [contributions] are after-tax, and then [if] you take the money out again, later on in life, and you’re taxed again on it. … So it can impact your long-term, overall financial health and wellness.”

Eweka adds that emergency savings accounts can make a significant difference in preventing employees from drawing their retirement accounts down early.

TIAA found that about one in eight HBCU participants had an outstanding loan between 2021 and 2022, and this was twice as likely as all other non-HBCU participants and those at peer institutions.

However, HBCU borrowers took out significantly smaller loan amounts in dollar terms, with the average loan being 13%, or $1,992, lower than loans taken out by non-HBCU employees.

Still, for those with at least 25 years of participation with TIAA, balances for HBCU participants are approximately 30% smaller at each percentile than those of peer institution counterparts.

The TIAA report suggested that continued innovation in workplace plans, such as incorporating emergency savings accounts through payroll deductions or adding guaranteed income products and personalized financial advice, could improve retirement outcomes for HBCU workers.