It used to be that most American workers could expect guaranteed checks in retirement thanks to a pension, or what economists call a defined-benefit plan. But in the 1980s, the country went through a major shift, with employers ditching pensions in favor of 401(k) accounts. Those accounts, known as defined-contribution plans, don’t guarantee payouts, leaving it up to the employees to enroll, contribute, and make smart investment decisions to ensure they’ll get enough money in old age.
The shift from pensions to 401(k)s hasn’t just left Americans in a riskier situation. It’s also created huge gulfs between what well-to-do, white workers can save up for retirement and what people of color and low-income workers have in their nest eggs.
According to a new report from the Economic Policy Institute, “retirement disparities have grown with the shift from traditional pensions to retirement savings accounts.” People who are rich, white, college-educated, and married are far more likely to participate in a 401(k) plan than others. More than two-thirds of people in the top fifth of the income distribution are enrolled in 401(k)s, compared to just 4 percent of the poorest fifth; about half of white workers are enrolled, versus 32 percent of black workers and 20 percent of Hispanics. While there are also disparities in pension use, it’s far starker among defined-benefit plans.
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