Senate Labor & Pensions Committee Issues Testimony From Bredhoff & Kaiser Of Counsel Kyle
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I want to thank you for the opportunity to testify today about disparities in retirement savings in furtherance of your efforts to ensure all Americans have the means to enjoy a secure retirement.
My name is
Before joining Bredhoff & Kaiser, I spent 15 years in government. After graduating from
In my testimony today, I will be discussing retirement savings with a focus on class disparities, racial disparities, and gender disparities. While the numbers differ for each of these groups, the story is the same--retirement policy that relies solely on the ability of individuals to save will only exacerbate the income inequality already present in this country.
Retirement Security Still Unavailable to Many
Many Americans have begun contemplating retiring years earlier than planned.1 2.7 million Americans over 55 years old are considering early retirement, and "[t]he number of people expecting to work beyond age 67 fell to a record low of 32.9% last month."2 Some of these individuals are choosing to retire early because of fatigue from the global pandemic.3 Those with the luxury to even contemplate early retirement can do so because they have savings sufficient to last them their whole lives. These potential early retirees are disproportionately white with high salaries and large amounts of accumulated wealth.4 Many working-class people, people of color, and women, however, cannot retire early or at all because their savings are not and will never be sufficient to last them into old age.
i. Socioeconomic Status
In 2013, the median income for individuals with retirement savings was three times that of individuals without retirement savings.5 Broadly speaking, the societal shift from pension plans to defined contribution plans has amplified disparities in retirement savings along class lines. In 2019, 72% of families below retirement age in the top quintile participated in defined-contribution plans, as compared to only 5% of families in the bottom quintile -- to put it another way, high-income families were fourteen times more likely to have retirement savings accounts than low-income families.6 Participation in defined-contribution plans is highly correlated to relative socioeconomic status, even among those who are considered middle class. Almost two-thirds (58%) of families in the upper-middle class participate in defined-contribution plans.7 That number drops to four in ten (40%) families in the middle class, and only one fourth (25%) of families in the lower-middle class.8 This disparity in actual participation may, in part, be explained by the fact that 401(k) plans require workers to contribute, which is a greater hurdle for lower-income workers with less disposable income, lower investment risk tolerance, and lesser tax breaks.9
Of households with savings, the amount of savings varies widely based on economic class. While median households with savings only have
ii. Race/Ethnicity
When we look at retirement disparities along race and ethnic lines, the picture is worse. By and large, White people have substantially more retirement savings and retirement plan participation than people of color.17 Most Black and Hispanic households have no retirement savings at all.18 Fully 61% percent of Hispanic Americans and 54% of Black Americans are at risk for having inadequate income in retirement, compared to 48% of White Americans.19 But significantly, Black and Hispanic participation in retirement savings plans has gotten worse over time, particularly since the Great Recession. From 2007 to 2019, the percentage of Hispanic families with retirement savings dropped from 38% to 32%; for Black families, the percentage dropped from 47% to 44%./20 Meanwhile, in 2019, 65% of White families had retirement savings, only slightly less than in 2007 (67%).21 The disparities in participation in 401(k) plans are similar, with 50% of White families participating in such plans in 2019, compared to 37% of Black families and 26% of Hispanic families.22 When looking at the amount of retirement savings Americans have in their retirement plans, disparities along racial lines are even more stark. In 2016, the average White family had almost
A significant reason for these disparities in savings can be traced to racial wage gaps. A 2019 study by the
iii. Sex/Gender
Many of the disparities we see by gender result from women being disproportionately low-wage workers28 who work in industries that do not provide access to employer-sponsored retirement plans.29 Disparities in retirement savings between men and women also are a result of the persistent gender wage gap. On average, a woman is still paid
Recent data show larger gaps between annual income and 401(k) balances for women than for men. A T. Rowe Price Retirement Savings and Spending study found that women's median annual income in 2019 was
Disparities in retirement savings between men and women are exacerbated by the fact that women. on average, live longer than men, meaning women generally must stretch to make less money sustain them for longer periods.35
iv. Effects of Union Membership
Because labor unions fight in large part to improve wages and benefits for working people, it is not surprising that union membership substantially improves access to and participation in retirement benefits that are provided through employment, especially for those in blue collar jobs. The
Covid-19 Exacerbated Inequality in Retirement in America
Women and people of color have faced increased difficulties in saving for retirement due to the Covid-19 pandemic, not the least of which is that many no longer have jobs that provide the income that allows them to save for retirement.39 Jobs that are held disproportionately by women were hit the hardest: 83% percent of waitresses, 72% of cleaners, and 58% of cooks lost their jobs in the first six weeks of the pandemic.40
I started this testimony describing a recent news article that states that, due to the pandemic, wealthy people are retiring early.43 Their retirement plans, funded through employer contributions and ample excess income put into savings, have fared well in the stock market. Social and personal hardships brought on by the pandemic have also led them to take stock in their lives. The impact of the pandemic for working people has been very different. Almost a third of Americans withdrew or borrowed money from their retirement plans in the last year.44 Over 60% of people who withdrew their retirement savings during the pandemic did so to cover basic living expenses.45 Provisions in the CARES Act and the American Rescue Plan understandably allowed additional withdrawals from retirement savings because many people had no other source of income to cover expenses while jobs were shuttered. These workers that were able to make it through difficult times with the help of savings were then left with an even larger retirement income deficit to fill.
Conclusion
As these disparities make clear, retirement insecurity is highly correlated to whether workers have the disposable income to afford to save for retirement. This does not have to be the case, however. Policies that improve worker wages, require employer contributions (not just matching contributions) to defined-contribution plans, and provide workers with funds to cover emergencies so that they can save for retirement without having to draw down on their retirement savings will help to bolster retirement savings for working people.
Proposals that are targeted to reduce retirement income disparities will also help. The Women's Retirement Protection Act, for example, extends spousal consent requirements to defined contribution plans so women do not unknowingly lose retirement income at divorce.46 The bill also allows more long-term part-time workers to participate in company retirement plans.
I testify today about disparities in retirement, but I am not a sociologist or economist. I am an attorney who sees these disparities in my work every day. I see it when pension plans review the impact of a robust stock market on plan investments and then turn to consider appeals from members with limited means who have been denied benefits. I see it when corporations decide to work-from-home endangering their janitors' jobs and retirement savings all at once. I ask, as you consider retirement policy, that you remember these workers and three things: defined-contribution plans are an important source of retirement income for many Americans but right now they are insufficient to provide lifetime income for most. Requiring employer contributions and otherwise increasing the value of these plans, will improve people's lives. Unions can and do help the most vulnerable workers advocate for a better more secure retirement, including lifetime income through defined benefit plans. Public policy should reflect that reality through support for legislation like the PRO Act.47 Most importantly, expanding
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Footnotes:
1
2 Id.
3 Id.
4 Id.
5
6
7 Id. at 9.
8 Id.
9
10
11 Id.
12 Morrissey, supra note 9, at 23, updated by the author.
13
14 Id.
15 Id.
16 Does Wall Street Always Win?
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18 Morrissey, supra note 6, at 14, updated by the author.
19
20 Morrissey, supra note 6, at 14, updated by the author.
21 Id.
22 Id. at 9.
23 Urban Inst., Nine Charts About Wealth Inequality in America (Updated), (last updated
24 Morrissey, supra note 6, at 15, updated by the author. Amounts are adjusted for inflation to 2019 dollars.
25 Id.
26
27 Nine Charts About Wealth Inequality, supra note 21; see also Morrissey & Sabadish, supra note 8, at 38 (describing data "suggest[ing] that the growing disparity in retirement savings is not simply a function of income inequality, but that our retirement system exacerbates inequality between racial and ethnic groups").
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29
30
31
32
33 Id.
34 Id.
35
36
37 Id.
38
39
40
41
42 Id.
43 See, e.g.,
44
45 Id.
46 Women's Retirement Protection Act, S.975, 116th Cong. (2019).
47 Protecting the Right to Organize Act of 2021, S. 420, 117th Cong. (2021).
48 Social Security Expansion Act, S. 478, 116th Cong. (2019).
49
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