Workers are much more likely to save for retirement if they can do it through a work-based retirement savings plan. Unfortunately, millions of Americans don’t have that access, and a disproportionate number of them are members of minority groups.
People of color are a lot more likely than white Americans to lack access to a pension, IRA or 401(k) at their jobs, according to a study by John Sabelhaus of the Brookings Institution. Nationally, two-thirds of Hispanic workers (63.6%) are without a work-based retirement plan, as are more than half (53.2%) of Black employees. Those percentages are substantially higher than those of Asian employees (45.2%) and white workers (41.6%) whose employers haven’t set up payroll-based retirement savings accounts for their employees.
More people of color have workplace savings plans in states where white people also have greater access. In Pennsylvania, for example, just 37.9% of white employees lack access to a workplace savings plan, a figure that’s nearly 4% better than the national average for white people. Hispanic workers do 8.2% better, with just 55.4% lacking access. Asian workers are 5.3% better off; 39.9% are without workplace savings plans. Unfortunately, Black workers are slightly worse off — 1.2% — in Pennsylvania than nationally.
The boats also rise and fall together in states where fewer white people have access to work-based saving plans. In Florida, for instance, 68.7% of Hispanic workers don’t have retirement plans at work, a number that’s 5.3% higher than the national average for Hispanic employees. And 61.3% of Black workers are without workplace savings access, an 8.1% difference from the national average. Asian workers in Florida have a 54.8% chance of being without workplace savings (9.6% higher than nationally), as are 52.1% of white employees, a 10.5% difference from the national number.
More minorities work for smaller businesses
From educational attainment to geography to mentorship, a wide variety of factors influence a worker’s career. Company size helps drive the difference in who can save for retirement at work, said Aaron Schumm, the founder and CEO of Vestwell, a New York-based firm that helps businesses manage employee retirement plans.
Statistics around employees of color at companies of any size aren’t easy to come by because organizations don’t necessarily report those numbers. As of a year ago, just half of Fortune 500 companies had publicized their statistics around diversity.
Research shows, however, that having a distinctly Black name reduced the likelihood by 2.1% that a job candidate would hear back from 108 of the largest U.S. employers. That would tend to reduce the number of Black people for those companies, at least, and potentially for other large companies as well.
Retirement plans
Smaller companies are less likely to offer retirement plans than are their larger competitors. Nearly half of small businesses — 44% — offer retirement savings plans, according to a late 2020 survey done by the nonprofit Transamerica Institute and its Transamerica Center for Retirement Studies, both based in Los Angeles. Ninety percent of large companies offer retirement plans, as do 83% of medium-sized firms.
Businesses that don’t offer employee retirement plans say that this is because they don’t generate enough revenue to offer the benefit; employees aren’t interested or are saving in other ways; other benefits are sufficient; or plan administration would be too expensive, according to a 2020 J.P. Morgan study. Even so, many of the small employers that don’t offer retirement plans are interested in doing so in the future, with 37% of them expecting to add that benefit in the next 12 months.
A lack of time and knowledge also keeps small businesses from offering employee retirement plans, according to Schumm.
“Setting up a plan can be intimidating, and it’s a hassle,” he said.
However, federal legislation announced at the end of March would require that all employers offer employee retirement plans. It would create starter retirement plans that offer employers lower costs and streamlined regulations and allow workers to save up to $6,000 a year, with catch-up contributions for savers who are at least 50 years old. The plans would automatically enroll workers at a default minimum of 3% of gross pay.
Enrolling workers in state-sponsored plans that currently exist is another option for employers. Nine states have enacted legislation and five have fully implemented Roth 401(k) plans for people who don’t have workplace options. California, Illinois, Massachusetts, Oregon and Washington have fully implemented, while Maryland, Colorado, Connecticut, New York, New Jersey, Virginia, Maine, Vermont and New Mexico, plus the city of Seattle, have enacted legislation.
These plans can require businesses to automatically enroll workers at 3% to 5% of payroll wages and to do some administration. Employees can opt out of the plan if they wish.
In total, 46 states either have or are on the road to having public 401(k) plans, Schumm said, and the plans are popular with workers.
“About 30% opt out, which is very similar to traditional 401(k) plans,” he said.
Employers don’t have to match contributions to the public plans, which makes the programs more affordable for them.
Some employers may favor a company-sponsored retirement plan over the public alternative, as it lets employees save more money and could involve an employer match. However, each business is different and should explore both options to determine a plan that fits their needs.
