EBRI Data Spotlights Pernicious Savings Gaps by Race, Ethnicity

The research organization says its latest analysis provides an important and sobering benchmark as policymakers and employers seek to address inequities in savings across races and ethnicities.

The Employee Benefit Research Institute (EBRI) has published a fresh crop of data looking at the breakdown of retirement savings across the different racial and ethnic groups comprising the U.S. workforce.

EBRI says the data represents yet another clear piece of evidence that not every race/ethnic group is amassing similar levels of wealth within individual account retirement plans such as 401(k)s. It is derived from the Survey of Consumer Finances (SCF), which is the Federal Reserve’s triennial survey of wealth.

According to EBRI’s analysis of the SCF data, just over half of families had an individual account-style retirement plan in 2019 (50.9%). However, the likelihood of having a retirement plan is significantly lower for families with Black/African American family heads than for families with white, non-Hispanic heads. Specifically, 57.2% of the latter and 34.9% of the former report owning some type of individual account savings plan.

EBRI reports the discrepancy is even greater for families with Hispanic heads. The data shows fewer than half as many (25.5%) families with Hispanic heads reported having retirement plan assets compared with families with white, non-Hispanic heads. EBRI also reports that these disparities have changed only marginally since 2010, showing the persistence of the issue.

EBRI finds families with Black/African American or Hispanic heads who did have a retirement plan also reported significantly lower median account balances than families with white, non-Hispanic heads. As of the end of 2019, EBRI reports, the median account balance of families with white heads was $80,000, versus $35,000 and $31,000 for families with Black/African American heads and Hispanic heads, respectively.

EBRI’s analysis concludes that families with minority heads are generally in a much worse position in their preparation for retirement in terms of individual retirement plan assets. As a result, EBRI says, these families are likely to have much less flexibility in financing retirement.

“Recognizing this, policymakers and employers appear to be placing a greater emphasis on addressing the inequities across races and ethnicities,” the analysis suggests. “Financial well-being programs can help address these disparities, particularly as employers develop holistic programs that address the full financial picture of employees and tailor these programs to the employees using them.”

EBRI’s analysis follows on the heels of a report published by the Investment Company Institute (ICI) showing total retirement plan assets grew to $34.9 trillion as of December 31, which is up 7.5% from the end of the third quarter of the year and up 9.3% overall for last year. With such strong growth for the year, the ICI reports, retirement assets accounted for a third of all household financial assets in the United States at the end of December.

The ICI update shows that assets in individual retirement accounts (IRAs) totaled $12.2 trillion at the end of the fourth quarter of 2020, while defined contribution (DC) plan assets were $9.6 trillion, up 6.8% from September 30.

Such growth figures would have been impressive in a “normal” year for the markets and the U.S. and global economies. But in the context of the ongoing coronavirus pandemic, which has now killed in excess of 525,000 Americans and caused historic surges in unemployment, the figures are even more notable. As various sources have discussed with PLANADVISER, the past year has made doubly clear the fact that the markets and the economy are not one and the same thing.

As demonstrated in the EBRI data, the past year (and decade) has also clearly demonstrated just how severe income and overall wealth inequality are in the United States. To be sure, since the global financial crisis of 2007 and 2008, U.S. households in the aggregate have come a long way in strengthening their balance sheets. Yet the distribution of wealth is highly unequal—about as unequal as it has ever been—and such research shows not everyone is able to participate in the growth of retirement plan assets.