Closing racial and gender wealth gaps starts with 401(k)s

America's defined contribution retirement system — 401(k)s, 403(b)s, 457(b)s and a collection of paycheck deduction IRAs — holds $10.4 trillion in assets. After home equity, retirement savings represent the second largest source of household wealth for Americans. But benefit advisers and other industry observers know that DC plans are just not creating financial security or wealth for everyone.

Per the 2019 Survey of Consumer Finances, about 60% of white families participate in  retirement plans compared to 45% of Black families and 34% of Hispanic families. And for working-age families who have balances in such accounts, the typical white family has about $50,000 saved, which is 2.5 times the amount saved as the typical Black or Hispanic family, who have about $20,000 saved in retirement accounts.  

That is a shocking difference, especially given how fundamental retirement savings are to building household wealth. Simply put, if we can't close these glaring retirement savings gaps, we don't stand a chance of closing the racial, gender, generational, or geographic wealth gaps. But we at the Aspen Institute Financial Security Program, along with our partners at the Morningstar Center for Retirement and Policy Studies and Defined Contribution Institutional Investment Association, see an opportunity for advisers, employers, recordkeepers, advocates and experts to take action to create more equitable savings outcomes in existing workplace retirement plans.

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Action begins with what we know — and critically, what we don't know — about what's causing these retirement savings differences. Of course, a key driver of differing savings outcomes is the well-documented racial and gender income gap. Lack of access to workplace retirement savings also contributes to disparate savings outcomes. AARP estimates that nearly 57 million American workers — disproportionately Black, Brown and female workers — lack access to a workplace plan. Providing these workers with access to workplace retirement savings is a shared goal for federal and state policymakers, as well as the retirement-savings industry.

But do gaps in income and access fully explain these retirement savings disparities? Do retirement plan opt-ins (or opt-outs), investment selections, loans, hardship withdrawals and cash-outs at job changes differ by race, gender, marital status, age and more? If so, how? Right now, we just don't know. But we do know that these seemingly small decisions and choices can translate to lower balances over time — and that having an evidence-based understanding of how employees from historically marginalized communities are utilizing retirement plans is imperative. In short, we can't make retirement savings programs work better for everyone if we don't really know how they work for participants now.  

Historically, employee demographic information has been stored in multiple different human resources and benefits data systems, separate from 401(k) recordkeeping data. But leading employers are seeing the value in connecting these data dots. They are joining our effort to pull and contribute — on an anonymized basis — 401(k) recordkeeping data and employee demographic data. Why? We see three key reasons.

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First, in this labor market, we know employers are hyper-focused on recruiting and retaining their staff. And we know employers are taking a hard look at their own benefit offerings in the wake of the pandemic and focusing on more deeply understanding the needs of their diverse workforce. By contributing their anonymous data to the project, employers get a fresh perspective on their own workforce. This will enable them to more clearly see opportunities for modifications in plan design and gaining insights on the kinds of financial wellness benefits that could make a meaningful difference for their employees. 

These first movers are also energized by their benefit team's opportunity to contribute to their company's diversity, equity and inclusion goals in a tangible, specific way. In the wake of George Floyd's murder in 2020, many companies made commitments to racial equity, their customers, communities and employees. A great deal of these corporate commitments centered on the collection and reporting of data broken down by race, gender and other demographic factors. Given its importance on Americans' balance sheets, the 401(k) should be no exception.

Finally, leadership matters when it comes to tackling big challenges. The wealth gaps that define contemporary American society are enormous, and the scale of the solutions required to fix them are daunting. But these challenges are solvable. With leadership from across the workplace retirement savings supply chain, there is a tremendous opportunity for the private sector to actively and equitably shape one of the most important ways household wealth is created in America — for everyone.