Unintentional Racism at Work: How Employers are Making Things Worse

Perhaps without knowing it, the companies that employ the vast majority of American workers are participating in programs that are huge contributors to racial inequities.

White families are about eight times as wealthy as Blacks and five times as wealthy as Hispanics.?Put another way, Black families have about 12 cents per $1 of white wealth—a gap that has remained largely unchanged over the past 30 years.?It gets worse—in the top quartile of net worth, Black wealth is just 1% of white while Hispanic is 14%.

Regardless of education, family status, age, and even income, white families significantly outpace people of color.

And one of the biggest contributors to the gap? Defined-Contribution Retirement Accounts.

It is not hard to figure out why.?Retirement plans disproportionately enrich the top earners in an organization, offering more matching funds (which are based on salary) and more opportunity for tax savings (since contribution limits are based on salary).?Furthermore, “safe harbor” plans allow highly-compensated employees to avoid nondiscrimination testing that is meant to prevent “top-heavy” plan contributions.

But it’s not just about income.?Regardless of earnings, more whites participate in retirement plans than their Black and Hispanic counterparts.?And not only do more whites contribute to these plans, they also deposit about 20% more than Blacks.

With 79% of Americans working or a company offering a retirement plan, these inequities add-up fast.?Retirement readiness is a huge problem that needs to be addressed, but the current system is exacerbating wealth gaps, and it doesn’t stop at retirement plans.

The financial industry is overwhelmingly white and male, with 78% of personal financial advisors being white and 68.5% male.?Only 6% are Black.?This means that the contributions to those retirement accounts—which favor white people—are also enriching an industry dominated by white men.?It’s also one of the most gender-discriminatory industries: women make less than 58% of men.?Every program an employer provides that enriches that industry is adding to wealth and wage gap issues.

Fortunately, there have been some great efforts at innovation in the financial wellness space.?Products like earned wage access offer the opportunity for people to avoid high-cost debt like credit cards and payday loans.?However, those programs make money based on usage and, while they may provide temporary relief, do not provide the pathway out of debt.?Perhaps worse, these programs are often free to employers, meaning they come nowhere close to what organizations are investing in and contributing to their retirement programs, and putting the cost burden on the less fortunate employees using these products.

Even education programs are problematic.?Again, these initiatives favor the privileged.?Of employees who report having access to a financial wellness program, just 8% say they participate.?These users are typically white males with higher incomes.?That’s more money an organization is spending that disproportionately benefits white men.

The intent to help employees face financial stress is commendable, especially since money is dominant stressor in America.?But the execution is creating more inequities and failing to give equal access to progress, adding to wealth gaps and making it even harder for people of color to succeed. As we celebrate Dr. Martin Luther King, Jr. this week, let's make sure we are doing the work to undo the injustices--intentional and unintentional--that have kept his dream from being realized.