Inequality and Insecurity in Retirement

 
The racial wealth gap doesn’t end in retirement. That was the overarching theme of the June 5 webinar Inequality and Insecurity in Retirement: Racial Disparities in Retirement Plan Coverage, Assets, and Adequacy in the U.S. and Massachusetts, which shared the highlights of a report co-authored by Boston Indicators with researchers from the Federal Reserve Bank of Boston.  

Boston Fed Vice President and Economist Jeffrey Thompson opened the report presentation with an overview of household wealth and retirement savings in the United States, noting that while there has been a shift over time from traditional Defined Benefit (DB) pension plans to Defined Contribution (DC) plans like 401(k)’s, the number of households with no retirement savings plan has remained steady at about 40 percent. 

For those nearing retirement, Thompson’s research notes the racial differences in assets, which show that Black households nearing retirement typically have more of their assets in retirement accounts such as DB and DC plans – which make up as much as 40% or more of household assets. “When looking at private asset composition by race, Black households stand out as having the highest retirement assets,” he noted. This, he said, provides a targeted opportunity to ensure more equitable financial outcomes. 

“Since retirement assets are somewhat more equally distributed than other assets, there’s good reason to hope that with thoughtful policy innovation that increases access to and support for retirement savings, we can move toward greater wealth equality. However, several important caveats must be considered,” Thompson said. 

One key factor is the significance of traditional direct benefit pensions for Black families, largely due to their continued presence in public sector employment. Black workers are more likely than other races to work in public sector jobs that offer these sorts of plans, and understanding their impact on retirement wealth is crucial for making policy decisions. 

Aja Kennedy, Racial Wealth Gap Research Fellow at Boston Indicators, then brought the data to a local level, presenting research on retirement security and racial disparities specific to Massachusetts. 

Kennedy presented data that showed how the Hispanic population in Massachusetts faces significant challenges regarding retirement plan access. Overrepresented in the service industry, which is less likely to offer retirement benefits, Hispanic employees are among the least likely to participate in any retirement plan. State data also show significant 401(k) disparities in both 401k) participation and asset values, with white and Asian households having the highest values and Black and Hispanic households the lowest. 

Coming up with policy solutions to address these disparities are an opportunity for closing racial wealth gaps, but can be complicated or provide greatest benefits to those who already have access to plans. Kennedy used an example of relying on tax credits or the pre-tax savings to incentivize retirement savings. “Historically, these have really only been particularly valuable to higher-income households who have responded to the incentives, but the incentives haven’t been crafted in a way to successfully inspire lower or middle-income households to save. And that’s an object of concern,” Kennedy said, suggesting that current policies are not adequately supporting those who need the most help in building their retirement savings. 

She also noted that DB pension plans, particularly for public workers, have faced concerns over their fiscal health. “There have been improvements in recent years, but the gap remains a perennial concern,” Kennedy added. 

The report makes mention of ideas for policy changes that could provide greater equity, particularly for those whose access to retirement plans or ability to save is limited. Thompson noted a Massachusetts proposal to create a DC-type saving plan for workers whose employers do not offer retirement benefits. The Secure Choice plan would create a state-sponsored alternative, but it appears unlikely to be considered in the current legislative session.