401(k) plans are racist:

401(k) Savings Incentives Seriously Amplify Wealth Gaps: MIT Paper
Researchers find Black, Hispanic workers contribute 40% less to 401(k)s

Brian Anderson, Editor-in-Chief
https://401kspecialistmag.com/...1d2846bb0362e88b5317

The average 401(k) contribution rate of Black and Hispanic workers is roughly 40% lower than that of White workers, according to a new paper from MIT Sloan School of Management.

Tax and employer matching subsidies further amplify these saving differences by channeling more resources to those who save more, the MIT researchers found. They estimate that breaking the link between contribution choices and saving subsidies, through revenue-neutral reforms, would significantly reduce racial gaps and intergenerational persistence in wealth.

The findings are particularly interesting given the current debate about the tax preferences of workplace retirement plans spurred by a controversial proposal by Alicia Munnell and Andrew Biggs advocating for ending those tax benefits and using the savings to bolster Social Security’s troubled finances.

The MIT working paper, “Who Benefits from Retirement Saving Incentives in the U.S.? Evidence on Racial Gaps in Retirement Wealth Accumulation,” starts out by saying U.S. employers and the federal government devote more than 1.5% of GDP annually towards promoting Defined Contribution retirement saving. The paper studies the distributional and lifetime impact of these savings incentives across racial groups using a new employer-employee linked data set covering millions of Americans.

The data show large gaps in retirement saving across the three largest racial and ethnic groups in the U.S.

The researchers set out to better understand the extent to which retirement accounts and the strong incentives attached to them might exacerbate existing wealth inequality that has persisted for decades.

The data show large gaps in retirement saving across the three largest racial and ethnic groups in the U.S.: non-Hispanic White, non-Hispanic Black, and Hispanic employees.

A Feb. 1 MIT Sloan School of Management article by Betsy Vereckey quotes Lawrence Schmidt, one of the paper’s authors and an assistant professor of finance at MIT Sloan, mentioning how the researchers know that Black and Hispanic workers in the U.S. typically are going to be entering their careers and living their lives in a position with fewer liquid resources available.

“Because there are tax penalties for taking out retirement money early, Black and Hispanic workers often face a dilemma: ‘Do I save for retirement, or do I save to help protect myself against a rainy day?’” Schmidt said.

Not utilizing tax-advantaged retirement plans leads to falling behind those who do. From the paper:

“At an average match of approximately 50 cents per dollar contributed, saving in a tax-favored employer-sponsored account is one of the best, if not the best, financial investment opportunities available to build wealth. This institutional design, therefore, rewards those who can, and do, save more for retirement. Employees who do not contribute receive neither tax benefits nor employer-matching contributions.”

Vereckey’s article also quotes another of the paper’s authors, Taha Choukhmane, an assistant professor at MIT Sloan, talking about how retirement accounts are unique from the perspective of getting massive support from employers, massive support from the government, and benefiting from compound interest through stock appreciation.

“When we study retirement, there’s been a lot of interest in whether these tax subsidies work and increase saving but a lot less on how those benefits are distributed,” Choukhmane said. “Being able to systematically document how it’s distributed and who’s getting left out from this system was a question that really interested us.”
Flagging the penalties

The research found that people are less likely to save if their household demand for liquidity is high, as employees who are short on cash are reluctant to contribute to a retirement fund, knowing they’ll be penalized if they need to withdraw money in an emergency.

“Our findings suggest that there can actually be a deterrent effect in making these accounts illiquid,” Schmidt said in the Vereckey article. The penalty was intended to keep people from spending their retirement money on other things, but an unintended consequence is that it might make retirement accounts less desirable and reduce participation in the first place.

The article notes that the emergency savings account provisions in SECURE 2.0 expanded the situations when savers can take penalty-free distributions to include disaster relief, terminal illness, or other personal or family emergency expenses.

The researchers’ overarching conclusion? We’ll take it from their conclusion on page 33 of the 130-page paper:

We find that the current system channels more tax and employer resources toward workers who are White, possess a college degree, and have richer parents or spouses than it channels toward their similar-income coworkers who are Black or Hispanic, are single parents, and have lower-income relatives. The consequent effects on wealth are large and are not directly addressed by other aspects of the retirement system. The Social Security formula does not vary by race, education, or parental background, and employer nondiscrimination tests consider only current compensation. Our results thus suggest that future research on the optimal design and distributional impact of retirement systems should look beyond differences along the income distribution to better understand the interplay between retirement saving policies and inequality.

• Read the complete working paper here:
https://mitsloan.mit.edu/cfi/w...-wealth-accumulation

What a load of crap that passes for research.

And once again, academia proves they have lost their fucking mind and have zero capacity for critical thinking, rationale inferences.

Load of crap "research." Equal opportunity was originally the goal not equal outcome. If you neglect to convert that opportunity into a desirable outcome that is your problem not others' problem. It's called personal responsibility.

Here is how easy my employer makes it to get the 401k match, you can contribute your dollars into an aftertax account (we have Traditional 401, ROTH 401K, Aftertax, and any combination you want of the three), and they'll match into a tax-advantaged account. You can take your aftertax money out whenever you wish, and meanwhile the free money from the employer is compounding. There is still a small percentage of people who don't do it.

Everything is racist to them.

It's clear to read between the lines and see the real agenda here; they want to make 401k's illegal and have the government be in charge of all retirement plans. Because they've done such a great job with SS and everything else, right?

quote:

It's clear to read between the lines and see the real agenda here; they want to make 401k's illegal and have the government be in charge of all retirement plans. Because they've done such a great job with SS and everything else, right?

Yes, that's what this is setting up, it's in the conclusion:

The consequent effects on wealth are large and are not directly addressed by other aspects of the retirement system. The Social Security formula does not vary by race, education, or parental background, and employer nondiscrimination tests consider only current compensation.

Allowing people to participate in a voluntary program creates "wealth disparity" because:
The average 401(k) contribution rate of Black and Hispanic workers is roughly 40% lower than that of White workers.

So, put the government in charge and take a way choice.

quote:

Equal opportunity was originally the goal, not equal outcome. If you neglect to convert that opportunity into a desirable outcome that is your problem not others' problem. It's called personal responsibility.

^^^^ This, 1,000%

The article is racist. It implies blacks and hispanics are incapable of making their own financial decisions about retirement; therefore, the government needs to force them to put more money into SS for their own good.

quote:

Originally posted by PASig:
Everything is racist to them.

Except actual, y'know... racism.

Speaking intelligible English (or its American variant) well: Racist.

Becoming well-educated (esp. math): Racist.

Owning property: Racist.

Maintaining a nuclear family: Racist.

Holding down a steady job, spending within your means, setting some aside for the future: Racist.

Being physically fit: Yeah, turns out that's racist, too. (I kid you not. Look it up.)

Basically, the study is advocating racism.

quote:

Originally posted by trapper189:
The article is racist. It implies blacks and hispanics are incapable of making their own financial decisions about retirement; therefore, the government needs to force them to put more money into SS for their own good.

quote:

Originally posted by ZSMICHAEL:
What a load of crap that passes for research.

I 100% agree with that statement. This BS paper is just one of too many to mention. I would think a picture of the "research" team might be appropriate.

When it was time to sign up for benefits from the company I eventually retired from 25 yrs ago, not one black, hispanic, white trash person signed up for the 401k. I think the company matched either 4 or 6 percent. Of course I did and forgot about it. Their reason was they wanted all the money they worked for on that check and not let the company keep any more.

quote:

Originally posted by lkdr1989:
Basically, the study is advocating racism.

quote:

Originally posted by trapper189:
The article is racist. It implies blacks and hispanics are incapable of making their own financial decisions about retirement; therefore, the government needs to force them to put more money into SS for their own good.

Or that, because they are black or Hispanic and therefore not capable of making their own financial decisions, they should merit more SS in retirement.

When these types of studies are released, I always wonder if they interviewed or study successful minorities - men and women who started saving at a young age, took advantage of retirement saving opportunities, worked second jobs, lived well below their means, didn't buy super expensive homes or cars, etc. Are these financially successful minorities the exception? Did they hijack evil whitey's economic model and employ it in their lives? Once in a while I'll run into an old black man, with a Navy hat on denoting his service in Vietnam, driving a clean old pickup or Buick, and living in a modest home with a well maintained yard.

He seemed to embrace the concept of self reliance. Why not others?

Because having a long time preference and making a lot of sacrifices every month for decades by putting the most per paycheck I could in my 401k ? Fuck them.

Or is it the old I’m a Raciss Whitey becuase i went to college and paid my own debts for said education, I didn’t get arrested, didn’t get anyone pregnant until I was married to them and financially ready for that ? Also both my parents are still married to each other so that’s my Raciss privilege I guess. Guess what. Nobody’s stopping anybody from doing a Side hustle and sticking 7k in their IRA. Even if their employer does not offer a 401k.

This has been addressed at least since Aesops Fables (The Cricket and The Ant) and the Old Testament (Joseph storing grain). It's why learning is important.

quote:

lived well below their means

The one, fail safe, way to ensure financial security once one's working life ends.

The folks who live paycheck-to-paycheck end up broke, no matter their position on the social scale. This is as true for those pulling down a high income as it is for those "just getting by." Spend as much as you want, but don't blame someone else when it's all gone! It's also true for governments.

quote:

It's also true for governments.

Unfortunately, we've lost our way.
The sad thing is that even those who don't support high government spending or deficits will end up suffering as a result.

Time to let the Government take over those racist 401K accounts and disburse them more equably.

Thanks for all your hard work and thriftiness.

Signed: Uncle Sam

If you're not being called a racist every day then you are not racist enough.

When you are used to special treatment, equal treatment seems racist.