401(k)s – economic stratification and inequality, less retirement security

Posted by AzBlueMeanie:

Lydia DePillis at Ezra Klein's Wonkblog writes 401(k)s are replacing pensions. That’s making inequality worse.

The once-dominant defined benefit pension plan–which pays out a fixed amount after an employee retires–is on its way to becoming an historical artifact. More and more employers are offering 401(k) plans instead,
which require employees to pay into their own accounts, sometimes with
and sometimes without a matching contribution. And according to a new analysis
from the labor-oriented Economic Policy Institute, the effect has been a
stratification of retirement savings by education, income, and
race–which could deepen inequality among the elderly as the population
ages.

It’s actually possible to tell [spin] a positive story here, in which the average size of retirement accounts has grown overall in recent decades, and aggregate saving and household net worth as a percentage of income have started to bounce back since the recession first hit in 2008.

But the moral starts to change as you look underneath the numbers. Those
benefits split among a smaller share of the population: Overall, the
percentage of workers participating in all employer-based retirement
plans declined over the past couple decades, across all age groups.

That’s because the top-earning people are choosing to put a lot more
money away, while those who earn less can’t afford to. Retirement
savings by the top fifth of income earners have risen markedly, while they’ve declined or risen only slightly for most everyone else:

The Baby Boomers have done a good job of socking away money, and are
pushing up the average as they approach retirement age. But younger
people are saving at slower rates than their parents and grandparents.

There are also tremendous returns to education. While the share of
people with college degrees participating in employer-based retirement
programs stayed steady, the participation rate of less educated people declined. And the savings accounts of those with college degrees swelled much faster than those without.

The pattern repeats itself when you look at race. White people are pulling away from blacks and Hispanics, both in the share of those who have retirement accounts and in the amount of money they have saved up.

Looking at gender differences, the gap between women and men in returns on pension plans has decreased over the years, and retirement plan participation rates of men and women have gotten more equal (due in part to a slight decline for men).

Generous pensions have gotten a bad rap in recent years because of the
difficulty that companies and governments have had in keeping up with
their obligations (see: Detroit). But, when they were more prevalent,
they did have the beneficial effect of locking in retirement security
for all of those lucky enough to have one. Now, especially with workers
having a harder time dealing with immediate needs, putting away money
for retirement is a trade-off they’re often not able to make–especially
non-whites and the less educated.

What we wind up with is a workforce dependent on Social Security as its only source of retirement security. And Tea-Publicans are still chomping at the bit to privatize Social Security to allow the banksters of Wall Street to financially undermine the last bastion of retirement security for a majority of Americans.

UPDATE: The IRS released a first-time, and alarming, report
on participation in retirement savings accounts, showing that the fewer
and fewer workers are saving for retirement out of their paychecks, and
the amount they are saving is shrinking too, down 6 percent in real
dollars from 2008 to 2010.