Today, we will be re-sharing this blog post originally published by Tyler Bond on February 28, 2017. Updated information will be reflected in italics.
A report from the National Institute on Retirement Security (NIRS) finds that at least three-fourths of Americans- both Democrats and Republicans- are concerned about their ability to retire securely. Unfortunately, this lack of retirement preparedness affects some communities more profoundly than others. Black households earn significantly less income than white households. This inequality in income leads to inequality in overall household wealth, which includes retirement wealth. However, an often overlooked bright spot is that many Black households still have access to traditional defined-benefit pensions.
Traditional pensions used to be the most common type of workplace retirement plan. Over the past thirty years, however, companies in the private sector have increasingly abandoned pensions in favor of cheaper (for companies) and riskier (for workers) defined-contribution plans like 401(k)s. Traditional pensions remain the most common retirement plan in the public sector. Seeking stable employment and good pay, Black Americans historically have been more likely to work in the public sector than other groups. According to the journal Research in Social Stratification and Mobility, 23.7% of Black women and 20.3% of Black men work in the public sector, higher than for whites at 17.2% of white women and 13.4% of white men. As a result, Black households are almost as likely to have a pension as white households are, and with it, the security of knowing they can retire with dignity.
The decline of pensions in the private sector goes hand-in-hand with other trends over the past thirty years that have perpetuated the income and wealth inequality affecting Black households. Income inequality has increased across the board, but it has been particularly severe for Black families, whose median household income in 2018 was only 59% of white households. The wealth gap is even wider: median Black wealth is less than 15% of median white wealth.
The racial wealth gap also extends to retirement wealth. According to AARP, Black employees are less likely to have access to a workplace retirement plan than white employees: 57% of white employees have access, while only 50% percent of Black employees do. However, Black employees in the public sector are significantly more likely to have access to a workplace retirement plan than those in the private sector. This is where pensions come in. According to the Economic Policy Institute, 24% of white households have a defined-benefit pension, as do 20% of Black households.
Pensions are the best way for working families to prepare for retirement. Unlike 401(k) plans, pensions offer a number of advantages to workers, including lower management fees, automatic enrollment, and a lifetime guarantee of retirement benefits. For Black households that would otherwise face serious obstacles to saving for retirement, pensions earned through public service are a reliable path to retirement security.
There are many reasons for the lack of retirement wealth in Black households. Through a history of private and public sector discrimination in areas such as housing, education, and employment, Black families have been unable to accumulate significant wealth. In the aftermath of the Great Recession and the coronavirus-induced economic crisis, Black wealth has fallen as many Black households saw what little wealth they did have disappear. The lack of access to a workplace retirement savings plan is also a significant barrier – and not just for Black households.
The lesson from the past thirty years is that providing an adequate retirement to employees contributes to the public good. NIRS finds that Social Security plays a key role in providing retirement security for Black households, with nearly 45% of Black seniors counting Social Security as their only form of income in retirement. Programs that provide universal, mandatory coverage – like Social Security – are a more reliable way for many households to prepare for retirement. Similarly, pension plans are typically mandatory and provide coverage for all the public employees in the plan. We’ve seen over the past thirty years how the move away from traditional pensions in the private sector has exacerbated the racial retirement wealth gap. Attacks on public pensions, if successful, would yield a similar result.