By JoAnne Powers, March 15, 2016
New research from the Washington, D.C.-based Economic Policy Institute shows a growing retirement gap between white workers and workers of color. Back in the 1980s, before private sector employers in the U.S. moved to rapidly replace their retirement plans with defined-contribution accounts, participation was approximately equal between black and white workers. However, since 401(k) accounts became prevalent over traditional employer-provided retirement plans in the 1990s, a gap has emerged in participation between black and white workers. Meanwhile, while Hispanic workers have always lagged in retirement participation, 401(k)s have made this gap even worse. EPI Economist Monique Morrissey:
[Monique Morrissey]: “What we found is that 401(k)s basically opened up a gap that did not previously exist between black and white workers in retirement. Even worse than that, even for workers with money in retirement savings plans, the amounts for white workers vastly outweighed those for black workers and Hispanic workers. There’s a gap in participation, and there’s an even wider gap in savings that is more than the gap in income. What this is telling us is that our retirement system is starting to magnify inequality, rather than simply reflect it.”
While minority workers are generally paid less than white workers, the gap in savings is much larger than the gap in income. Morrissey stressed that the difference is also not an issue of behavior. Lower income groups, in general, are less likely to work for employers who offer retirement plans. If employers do offer a plan, they’re less likely to have matching contributions.
[Monique Morrissey]: “So it starts at the beginning with what the employer is offering: whether they provide a plan at all and whether that plan’s any good…whether there’s any reason for the worker to participate in the retirement plan as opposed to save in a bank account or some other form, or buy a house. And if you don’t have an employer contribution, for a lot of working class folks there’s really not much of a tax incentive to participate. And, if you have to take your money out early, you end up paying a penalty, and that’s much more likely to happen to lower-income workers. We shouldn’t blame the victims. We shouldn’t look at groups that are saving less and say ‘well, it’s because they’re not saving enough,’ because, really, the system is stacked against them.”
EPIs research shows that white workers have nearly five times as much wealth in retirement accounts than black workers.
[Monique Morrissey]: “Most of the money in 401(k)s is really just wealth that existed already and that was funneled to tax-favored accounts. White families, historically, have been able to amass much more wealth than minority families, for a lot of other reasons. Many ways that people historically have been able to save, through home equity and inheritances and things like that were closed off to African-Americans and Hispanics, especially home equity. Ordinary workers, most of us think of 401(k)s as a retirement account, but, by and large, what they serve as is a tax shelter for wealthy families.”