One year after Secure 2.0, retirement race gap remains stubborn

A little more than a year after Congress passed landmark retirement legislation, American nest eggs are still deeply divided by race.

That's the conclusion of a new study from the Brookings Institution, a public policy think tank in Washington, D.C. The study examined the current state of the U.S. retirement system in the wake of two laws designed to reform it: the Secure Act of 2019 and the Secure 2.0 Act of 2022. 

But while Brookings noted improvement in some areas, on one issue it found little progress: the persistent racial gap in retirement savings.

"Even though the legislation includes a number of reforms, it does not reflect a broad or comprehensive vision of needed changes to the private retirement system," the study said. "As a result, there is still much more work to do."

An uneven retirement landscape

Historically, white Americans have had far more retirement wealth than their compatriots of other races. In 2016, Brookings pointed out, the median Black household had amassed only 46% of the long-term savings of the median white household, and the median Hispanic household had just 49%.

More recently, a 2023 report by the Government Accountability Office (GAO) found that this pattern had held steady: White Americans aged 51 to 64 typically had twice as much retirement savings as Americans of all other races.

"We have a racial income and wealth gap," David John, deputy director of Brookings' Retirement Security Project, said at a panel discussing the study. "It is there, it has been present, it is not really improving all that much."

This is partly because Americans of color have less access to 401(k)s. Brookings found that 58% of white employees work for employers that sponsor retirement plans, compared to 47% of Black employees and 36% of Latino employees.

Even apart from private retirement savings, there's a race gap in Social Security. Over the course of their lives, Black adults born from 2001 to 2010 will collect 19% less in Social Security benefits than white adults, and Hispanic adults will get 14% less, according to a recent study by the Center for Retirement Research at Boston College.

That's because Social Security benefits are proportional to people's incomes during their prime earnings years — which brings us to the root of the problem: Americans of color are generally paid less than white Americans. In 2019, the median income for white Americans was almost twice as much as for Black households, according to the GAO report. Meanwhile, the unemployment rate for Black Americans was almost twice that of white Americans.

READ MORE: The retirement savings race gap is wide and growing

And contributions to retirement plans, from both employers and employees, are proportional to that income — or lack thereof.

"Our existing retirement savings program relies on deductions and deferrals, so it provides the upside-down subsidy: Giving people more who have more, giving people less who have less," Regina Jefferson, a professor at the Columbus School of Law and a pension law expert, said at the Brookings panel.

In the long run, the result is an almost insurmountable racial wealth gap. The research group McKinsey & Company has estimated that, at the current rate of progress, it would take Black and white Americans more than 300 years to reach economic parity with each other.

Solutions beyond Secure 2.0

The Secure and Secure 2.0 laws did some things to level the playing field, including by making 401(k)s more widely accessible, encouraging reforms like automatic enrollment, facilitating multi-employer plans and many other measures.

But in Brookings' view, much more fundamental reforms are needed. One solution it proposes is auto-IRAs: state-sponsored individual retirement accounts that would be made available to Americans who don't have access to an employer-sponsored plan. Another is "employer-facilitated" retirement plans, which would follow workers from job to job instead of ending as soon as they change employers.

Such reforms, in the study's estimate, would get to the root of the retirement race gap, which is a gap in income and economic opportunity. Until that core problem is addressed, Brookings predicted, American retirements will remain highly unequal.

"I think the major challenge to the current private retirement system is that it only serves about half of us," Joshua Gotbaum, a guest scholar at Brookings' Economic Studies program, said at the panel. "People who are poorer, people who change jobs frequently, people who are less well educated, people who are discriminated against — and this includes women as well as people of color — they face an insecure retirement."