New Demos Report Highlights Importance of Public Pensions for African American Workers

Release Date: 
June 30, 2016

Without protecting and expanding public pension systems, black retirees may lose much of the retirement security they have gained in the last 50 years, a new Demos report finds.  The public sector has long been a strong source of employment for African Americans, with 21.2 percent of all black women and 15.4 percent of all black men working in the public sector.

In 2014, public pensions and Social Security together accounted for 57 percent of black retirees’ income compared to 49 percent for white retirees.

However, in Twin Threats: How Disappearing Public Pensions Hurt Black Workers, Demos Senior Policy Analyst Robert Hiltonsmith reveals that public pensions face twin threats to their long-term survival. These twin threats—cuts to state pension benefits and the decline in public employment over the last two decades—threaten the retirement security of all workers, particularly African Americans.

“Public pension income is particularly important to African American retirees, providing a larger share of income for them than for retirees of other races and ethnicities,” said Hiltonsmith. “In 2014, public pensions and Social Security together accounted for 57 percent of black retirees’ income compared to 49 percent for white retirees.”

Key Findings:

  • Older Americans are being forced to work to make up for the decline in private pensions and an increased retirement age. Between 1994 and 2014, the share of retirement income generated by wages increased 500%, from 3 percent to 15 percent.
  • For black retirees and other retirees of color, a public pension is literally the difference between a secure retirement and poverty. Less than three percent of black retirees with public pension lived below the poverty line, compared to 21.8 percent of black retirees without a public pension.
  • Growth in employment in the public sector has not kept pace with growth in the U.S. labor force as a whole. Total public employment only rose nine percent between 1994 and 2014, while the U.S. labor force grew 21.4 percent. This translates to almost 320,000 lost jobs for black workers.
  • Due to slow growth in the public sector, more black retirees will be forced into poverty. Demos projects that there will needlessly be an additional 70,000 black retirees in poverty due to a lagging public sector job market.
  • 34 states have either cut benefits for new workers, raised their retirement age, or increased worker’s pension contributions (in essence, a salary cut) in the last seven years.
  • Nine states cut pension benefits by ten percent or more. Four states – Alabama, Maryland, New Mexico, and Pennsylvania – cut benefits by at least 19 percent.

Public pensions are disappearing throughout the country, and with them, economic stability for millions of African Americans. However, this does not need to be the case. There are many options to consider which could revitalize and supplement public pensions.

The simplest option would be to prevent further cuts to public pensions. Most state pension systems are adequately funded and are only threatened by the states forgoing pension contributions. There is no reason for states and localities to make any further cuts. There should also be a widespread overhaul of the current 401(k) system, which forces savers to shoulder market risks and leaves future stability in limbo. Lastly, Social Security should be protected and expanded. Though much has been made about its insolvency by 2034, the funding gap could be almost completely eliminated by removing the earnings cap subject to the Social Security Payroll tax, which is currently set at $118,500.

Hiltonsmith concludes that “by protecting existing public pensions, creating new retirement savings accounts for private sector workers that provide many of the benefits of defined benefit plans, and protecting and strengthening Social Security, we can ensure that workers today and in the future—particularly workers of color—have the chance to retire with dignity, a key part of the American dream.”   

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