Closing the racial savings gap

September 9, 2021

Every American deserves the opportunity to achieve a comfortable retirement. But for many Americans today that opportunity remains out of reach because their employer doesn’t offer a retirement savings plan. The gateway to a comfortable retirement is having a 401(k)-style plan at work. Moderate income workers are 12 times more likely to save if they have access to some type of retirement plan. With almost $10 trillion in assets, these plans provide long term economic growth and build financial security for the middle class. Nearly two-thirds of participants in 401(k)s earn less than $100,000. One-third make less than $50,000.

The workplace retirement plan has been a success — for those that have access. Unfortunately, far too many working Americans still lack access to a retirement plan at work — a retirement plan coverage “gap” that is particularly pronounced in the Black and Latinx communities. More than half (52 percent) of Black Americans and more than two-thirds (68 percent) of Latinx Americans lack the opportunity to save in a workplace retirement plan, compared with 40 percent of White Americans. As a result, 56 percent of Black families and two-thirds of Latinx families have ZERO retirement savings compared with about a third of White families.  

Providing an opportunity to save through a workplace retirement plan, coupled with auto-enrollment is the key to closing this racial savings gap. Data shows that when even moderate-income workers are auto-enrolled in a workplace plan there is NO disparity in retirement savings participation with Black, Latinx, and White Americans all at about 80 percent. 

Today, the House Ways and Means Committee, led by Chairman Richard NealRichard Edmund NealWays and Means to begin marking up .5T package Five tax issues to watch as Democrats craft .5T bill Progressives prepare to launch counterattack in tax fight MORE (D-Mass.) begins work on legislation that will significantly close this gap giving millions more working Americans the opportunity for a comfortable retirement.  The Automatic Retirement Plan Act would require that businesses with 5 or more employees provide a retirement savings option to their workers. There would be no cost to employers to do so, since the legislation does not require any employer contributions, like matches, and goes further by providing smaller businesses a 100 percent tax credit for any administrative costs they might incur.  

The Ways and Means Committee is also creating the Savers Match, which would provide an additional incentive to save, and boost the retirement security of moderate-income workers. The Savers Match provides a 50 percent government matching contribution of up to $500 a year contributed directly into the workers 401(k) plan account — and it would be available in full to families earning up to $50,000 a year, with a reduced amount for families making up to $70,000.  

What impact would this have? Estimates show that enactment of the combination of the Automatic Retirement Plan Act and the Savers Match would result in 62 million new retirement savers and nearly $7 trillion in new savings over the next 10 years. Nearly all — 98 percent — of these new savers earn less than $100,000 a year, including nearly 18 million new savers from the Black and Latinx communities.

For working Americans, retirement savings is important because it provides a cushion against unexpected financial shocks. Retirement savings is also accumulated wealth which leads to generational wealth. Ultimately, retirement savings is an essential element in closing the nation’s racial wealth gap. These two vital retirement savings proposals together will give tens of millions of new Americans the opportunity for a comfortable retirement. By enacting both of these proposals Congress can turn the 401(k) success story into a story of diversity as well. 

Brian H Graff CEO is American Retirement Association.