The Asset Report 2012’s new data on retirement reveals just how difficult it is becoming for Americans to save enough money to support themselves once they have stopped working, particularly in the wake of the recession. To start, fewer employers are offering retirement plans and fewer workers are participating in them; in fact, the level of participation in employer-sponsored plans is at its lowest level in thirty years. Additionally, the majority of workers who benefit from retirement plans are in higher-income jobs. Likewise, because virtually all of the funds the federal government allocates for retirement are in the form of regressive tax subsidies, workers in higher income brackets disproportionately benefit. This policy in turn has a disparate impact on women and people of color, who are more likely to hold low-wage jobs without benefits.
The percentage of employers that offer retirement plans has declined significantly since 2000 across all income brackets—though higher earners are still far more likely to have the opportunity to participate in a plan. In 2008, individuals in the top income quartile had a 73% chance of working for an employer who offered a retirement plan, compared to 80% in 2000. For earners in the bottom quartile, the percentage fell from 45% in 2000 to 38% in 2008. Additionally, the top 20% of households receive 80% of the tax benefits for pension plans; those in the bottom 40% receive only 2% of the benefit. More concretely, this means that families in the top quintile receive about $58.4 billion in government subsidies to their retirement funds, compared to only $1.46 billion for the bottom two quintiles combined.
Like with the budget’s allocations to homeownership (as I discussed yesterday), the gaps in access to retirement savings plans have real and dramatic effects on racial equity in assets building—and thus real consequences for intergenerational poverty and social mobility (or the lack thereof). For example, service industry jobs are notoriously low-wage and employers are less likely to offer pension plans. In 2010, 33.2% of Hispanic women and 21.8% of Hispanic men worked in the service industry, compared to only 20.1% and 13.6% of white women and men respectively.
By contrast, among employed men, 35% of whites, 24% percent of blacks, and 15% of Hispanics worked in management, professional, and related occupations in 2010; the percentages were somewhat higher for women across races. As these professional occupations are the most likely to provide retirement plans, white earners disproportionately benefit. Furthermore, these differences in access to retirement plans are compounded by greater debt among black and Hispanic households. Altogether, these policies and practices comprise a system that will only facilitate the growth of the racial wealth gap.
One solution to the problem of inadequate and inequitable retirement saving is a universal 401(k). Through a universal 401(k), the federal government would create tax-free retirement accounts for low and middle-income workers who are not covered by their employers, and match personal contributions to the accounts. The universal 401(k) would reduce both dependence on Social Security—which one-third of beneficiaries currently rely on for ninety percent or more of their income—and the inequity in the ability to save for retirement that correlates to income and job sector. Facilitating the ability of all families to save for retirement—not just those that are already financially secure—would be an important move toward accommodating an aging population and developing a more just economy.