Kyla Ernst-Alper is an aviation expert in New York City. She never had more than two decades of her job an employer offering her a 401 (k) retirement plan.
Giles Clement
Kyla Ernst-Alper, a 38-year-old artist in New York, has never had a 401 (k) retirement plan.
She has several tasks at once to support herself, and none of them offer her retirement options. She socks away what she can into an individual retirement account, but the savings are not always consistent. This is due to her work, which was particularly hard hit when live shows were canceled due to the public health crisis.
“Before the pandemic, people in my community barely paid their bills,” Ernst-Alper said. “You’re lucky if you can save money.”
The 401 (k) is set today as the most important way to save Americans for retirement, especially as traditional pensions become less common. However, a large proportion of workers, especially low-income workers, women and people of color, are left behind due to lack of access to the plans.
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In general, about half of the workers in the private sector do not fall under a retirement plan sponsored by the employer, either because their business does not have one, or because they are not eligible for the offer, according to the Center for Retirement Research in Boston. College. In addition, a growing number of U.S. workers generally do not have access to a 401 (k) because they are contractors or self-employed.
Those who do not have access to an employer-based plan may be left without benefits such as employers’ corresponding contributions or the automatic enrollment of employees. As a result, 1 in 4 US workers does not even save $ 10,000 for retirement.
“For many demographic groups, the typical working-age household has no savings at all on the retirement account, or only a small amount,” said Monique Morrissey, an economist at the left-wing Economic Policy Institute.
They will have a greater risk of poverty during retirement.
Catherine Collinson
CEO and President of the Transamerica Retirement Studies Center
To be sure, experts say that although 401 (k) plans have their problems, they should not be discontinued. If used, they could be powerful savings instruments – according to Fidelity, the average investment of 401 (k) in their twenties in 2019 was $ 10,500. Those in their thirties saved an average of $ 38,400, while those in their 40s, 50s, and 60s averaged $ 93,400, $ 160,000, and $ 182,100, respectively.
“I do not mean to say, ‘Get rid of 401 (k) plans,'” said Steve Vernon, a research fellow at the Stanford Center of Longevity. “I just mean they need to improve.”
The improvement should take the form of more access, said Nevin Adams, chief executive of the American Retirement Association.
Indeed, if people are offered the chance to save in a 401 (k), they accept it. According to a survey by the Plan Sponsor Council of America, nearly 90% of employees who had access to a 401 (k) at work in 2019 contributed to their plan
Here’s who’s leaving the plans behind. (Many people fall into various categories.)
Small Business Workers
Catherine Collinson, CEO and president of the Transamerica Center for Retirement Studies, is much more likely that large companies will offer a 401 (k) plan to their workers.
While 92% of companies with 500 or more employees offered a 401 (k) or similar plan in 2019, only 57% of businesses with fewer than 99 employees did so, according to a survey by Transamerica Center.
“Employers who do not present plans tend to be new, have small, relatively few employees and / or employ a short-term, temporary, part-time and / or lower-wage workforce,” said Angie Chen, assistant director savings research at the center. for Retirement Research at Boston College, wrote in an email.
Many of these workers do not have the time to plead for change.
“These employees often have urgent financial needs that usually displace the demand for retirement security provided by employers,” Chen said.
Low- and middle-income workers
Individuals with higher incomes are much more likely to be offered a 401 (k) at work than those with lower incomes, which only exacerbates inequality in pension savings.
More than 70% of workers with a household income of more than $ 100,000 have access to a 401 (k), compared to 50% of employees with a household income below $ 50,000, Transamerica found.
“Income disparities and access to retirement benefits suggest that lower-income employees will inevitably rely on social security for a larger portion of their pensions,” Collinson said. (The average Social Security check is less than $ 1,400.)
“They will have a greater risk of poverty during retirement.”
Gig and part-time workers
Danny Samet, 28, is saving for retirement through a few different investment accounts, he said. As a freelancer in the music industry, he has never had a retirement account sponsored by the employer.
Chase Kensrue
401 (k) plans are mostly related to full-time traditional employment.
Yet research has found that the proportion of American workers working temporarily or unsteadily is increasing rapidly.
Many of these workers who earn their living in programs or work only on a freelance basis do not have access to a retirement plan. The Transamerica survey found that only 41% of part-time workers offered a 401 (k) plan.
Although it is possible to set up and contribute to a so-called solo 401 (k) without having to join the features of an employer or enroll automatically, gig workers abandon these options.
Danny Samet, from Cincinnati, has always worked freelance as a tour manager and merchandiser for bands, and has jumped from one concert to the next. He’s never been saved in a pension plan sponsored by the company, and thought he was putting what he could away in a few different IRAs.
In his industry, he said, most people have no savings for their later years.
“There are a lot of people who do not want to make their pension,” Samet, 28, said.
People of color and women
Jenny Lezan
Source: Jenny Lezan
According to John Scott, project director of pension savings at Pew Charitable Trusts, people of color and women are more likely to work in industries or jobs that do not provide access to an employer-sponsored plan.
They also usually make less than White men, which usually means they can save less over time.
Half of working-age White households have access to a 401 (k) or similar plan at their current job, compared to 37% of Black households and 26% of Hispanic households, according to the EPI.
Jenny Lezan from Naperville, Illinois, does not qualify for a retirement plan at the school where she teaches because she is a deputy professor.
“I’m considered a contract worker,” said Lezan, 35. “I do not yet have retirement funds, which if I am honest, are scary.”
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