Sharp Drop in Minorities Pension Coverage Found

Private pension coverage among blacks and Latinos has fallen sharply since 1979, an alarming trend that suggests many minority workers will become strictly dependent on Social Security and have a shrinking chance to enjoy a financially comfortable retirement, according to a new study released Wednesday.

The percentage of blacks covered by private pensions of all types plunged from 45.1% in 1979 to 33.8% in 1993, while coverage among Latinos declined from 37.7% to 24.6%, said the study, the first detailed look at pension coverage by race and ethnicity. The share of whites with pension coverage remained relatively stable, dipping from 49.9% to 45.1%.

The growing disparities--which come as fewer firms offer pensions, or companies shift to voluntary ones--are another disturbing sign of a widening gap between haves and have-nots, experts said. The same workers who lack a pension plan also are likely to lack health insurance, particularly in California, where the most rapid growth in the economy comes among small firms who often don’t provide pensions or health insurance.

Many minority group members face “almost a dead end in private pensions,” said Yung-Ping Chen, a University of Massachusetts-Boston gerontology professor who prepared the study.

The reasons for the disparities include the disappearance of many industrial, unionized jobs with pensions--jobs often held by blacks and Latinos. Also, minorities are now more likely to work for small companies, which are least likely to have pension plans. And blacks and Latinos are paid less, making them less able to enroll in the increasingly popular 401(k) plans, which are voluntary.

Data on Asian Americans and Native Americans was not available, as the study was based on a national population survey and there aren’t enough of those groups nationwide to make a statistically valid sample.

Private pension coverage, which grew steadily after World War II, peaked around 1980 but was assumed to have been relatively flat since then. Typically, these were traditional-style plans, where companies invest funds and promise workers a fixed monthly benefit at retirement.

In recent years, the fastest growing retirement program segment has been salary set-aside plans, such as the 401(k), where workers voluntarily put aside part of their pay and companies usually provide some matching contributions. Retirement income from those accounts will vary, depending on the worker’s contributions and choice of investments.

The soaring growth in 401(k) funds, which largely poured into the stock market, created the belief that pension assets were assuring a comfortable future for much of the nation’s working population, and that pension coverage had not declined dramatically.

But Chen’s study, going beyond the overall pension coverage, shows that pension protection for minorities may be going backward, rather than improving. Although the study ended with 1993 data, the general belief is that the trend has continued since then, as traditional pension plans continue to shrink.

“There is not much prospect for improving coverage” for minority workers, Chen said in an interview at a meeting of the Gerontological Society of America, where he delivered a paper on his research.

Millions of people will not have any significant retirement income beyond Social Security, increasing the importance of the federal program at a time when its fiscal future is under major debate, according to Chen, an economist who did his research with a grant from the Andrus Foundation of the American Assn. of Retired Persons.

Minority coverage has fallen along with the decline in manufacturing jobs at large companies with union contracts, which typically offered traditional fixed pensions. Workers were automatically protected, with the company responsible for putting money into pension funds and investing it prudently.

The disappearance of millions of well-paid jobs in the auto, steel, chemical and tire industries also meant the disappearance of generous health and retirement benefits. Minority group members had a significant share of those jobs.

Jobs created in more recent years are less likely to have major benefits. For example, there is a rapidly growing population of workers without health insurance, reflecting the changing nature of the economy.

Nationwide, about 12% of full-time workers lack health insurance, compared with 17% in California, 26% in Los Angeles County and 16% in Orange County, according to the UCLA Center for Health Policy Research. The differences reflect the greater impact of small businesses in the California economy, particularly in Southern California.

In the pension field, the fast-growing salary set-aside programs, such as 401(k)s, are particularly welcomed by the comparatively well-paid workers, those willing to give up some of their immediate income and put it aside for retirement. Minority group members, often making lower salaries, are less likely to participate.

“The hypothesis,” Chen said, is that people with smaller salaries “value current income more than future income. They want to buy lunch before they save for retirement.”

More than a quarter of all white workers, 27.9%, are enrolled in salary set-aside programs, compared with 16.6% of black workers and 12.2% of Latinos.

Participation rates vary considerably when the pension plans are purely voluntary. Chen found that 69.5% of white workers who were offered the salary set-aside programs chose to participate, compared with 52.5% of blacks and 57.6% of Latinos.

Chen is working on a proposal to change the Social Security tax system, using some of the surplus that will develop for the next 20 years to enable individual workers to have special investment accounts. This could increase their retirement income, he said.