Black Pensions Matter

On April 4, 1968, Martin Luther King Jr. was assassinated in Memphis, Tennessee, while supporting a Black sanitation workers strike (Hutchinson, 2019). Most Americans probably know those sad facts because they either lived through them or studied them at school. However, most Americans probably don’t know that the sanitation workers’ demands included a “10% wage increase, fair promotion policies, sick leave, pension programs, health insurance, and payroll deduction of union dues” (Estes, 2000, p. 158). Civil Rights advocates, like Dr. King, saw pensions and the organization of Black labor as one of many ways to improve the lives of Black workers and a method to level the economic playing field (Schmitt, 2008). So, believe it or not, Black pensions matter, and have for a long time.

I don’t wade into the subject of race and pensions lightly. But, up to this point, my work on the Golden Albatross worth vs. worth it decision framework has focused solely on the issues a generic pensionable worker would need to consider. And, since I’m a White-guy, it’s reasonable to assume that my vision of that generic worker was White … and a guy.

My lack of consideration for how the Golden Albatross decision framework might need to adapt based on either sex or race seems myopic. It looks incredibly myopic when considering the global re-emergence of the Black Lives Matter movement in 2020, as well as the unequal devastation caused by the COVID-19 along racial and socioeconomic lines. As a result, this article marks my first effort to correct my mistake.

One article won’t do it, though. In the future, I plan to expand the Pension Series and address the different pension-related planning considerations brought on by race, sex, and socioeconomic status. By doing so, I hope to contribute in a small but meaningful way to ongoing efforts to end institutionalized economic discrimination and racism in the U.S.

That’s a lofty goal, and deeds are better than words, which means your skepticism is warranted. Yet, even if I fail, the expansion of the Golden Albatross’ worth vs. worth it framework to consider race and sex will help non-White guy readers make a well-informed stay or go pension decision. It will also help them determine how broader socioeconomic issues exacerbated by race may impact their pension-based retirement planning and outcomes.

In and of itself, that result is a worthy enough reason to justify this effort. That said, I can’t do it all at once, which means I had to choose a place to start. As a result, I decided to start with Black pensions.

Is The Golden Albatross Up To The Challenge?

Naturally, my format choice begs the question as to whether or not the Golden Albatross framework is fit for purpose? I believe it is. I say that because, at its core, the Golden Albatross provides a method to assess the importance, role, and worth that a pension holds for a worker. It does this by analyzing the objectively valuable features and comparing them to subjective personal circumstances like health and happiness to make a worth vs. worth it (i.e., stay-or-go) decision. Meaning, it’s flexible enough to incorporate the impacts of an individual’s race on their worth vs. worth it pension decision-making process, assuming those impacts can be determined.

As a quick recap for new readers, it’s important to understand that when I refer to pensions, I am specifically referring to Defined Benefit Pensions (DBPs). If you don’t know what that means, click this link for an explanation. Moreover, in my book, The Golden Albatross (ChooseFI, 2020), I identified five objectively valuable features that distinguish more valuable pensions from less valuable. The most valuable pensions:

1. 1. 1. Possess shorter vestment periods
      2. Use pension valuation formulas with high-income averages and percentage multipliers, like this one:
         • [ ( A + B + C ) / 3 ] x .66 = Initial yearly pension with 2% bump in the
           multiple for each year of service over 25 years; maximum of 100%
         • A, B, and C are the highest three paid years
      3. Have a Consumer Price Index-linked (CPI-linked) COLA for the entire pension amount to negate inflation
      4. Start pay-outs immediately upon retirement vice waiting for a specific age
      5. Provide subsidized healthcare (only important in countries with no social healthcare system)

Two other objectively important issues one should consider are:

1. 1. 1. The pension fund’s safety based on its fiscal health
      2. The proportional amount of retirement expenses that a pension will cover (i.e., your Gap Number)

I also discuss personal issues in the book like mental and physical health; happiness; family obligations; work-life balance; fear; life plans; and retirement dreams and goals. While these issues are subjective, they also impact the worth vs. worth it decision. Taken in total, a pensionable worker can weigh all the issues, objective and subjective, against each other to make a well-informed worth vs. worth it pension decision.

Executive Summary: The Bottom Line (Kind of) Up Front

Given this article’s length, I decided to throw a summary right here for the TLDR (too long didn’t read) crowd. Thus, this section summarizes my findings but does not provide the evidence. Each summary paragraph refers to the related section in the article below where one can find in-depth information, including links to the sources.

My research shows that the importance of DBPs manifests itself in three distinct ways for Black retirees and/or workers. First, evidence suggests there is a strong linkage between successful retirement outcomes for Black retirees and DBPs. Access to DBPs in retirement shifts a significant number of Black retirees away from the poverty line and towards (or into) the retirement middle class compared to Black retirees without a pension. DBPs also effectively negate or drastically decrease racial disparities between Black and White retirees in several categories of retirement outcomes. See Finding #1 section below for the in-depth explanation.

Second, evidence shows Black workers’ prefer DBP retirement plans over Defined Contribution (DC) retirement plans. Several studies have measured this effect. Evidence of why that preference exists is less clear, although I present two of the leading theories. See Finding #2 below for the in-depth explanation.

Thirdly, the preference for DBPs among Black workers also contributes to a preference for pensionable jobs, specifically in the public sector and unionized professions. This preference has many positive benefits, like Finding #1 (successful retirement outcomes). However, it also comes at a cost, such as when global pandemics force layoffs and trade-offs at the state and local levels in the U.S. to meet balanced budget requirements. See Finding #3 below for the in-depth explanation.

The data supporting the three findings are less than perfect. For one, there aren’t enough studies to draw conclusions with a high level of confidence. Moreover, some studies use a narrow subject sample to study, like teachers and professors, since the data comes from natural experiments. See the Caveats and Context and A Few More Caveats sections below for in-depth explanations.

I note a contextual issue with the research due to what I believe is the low bar set in many of these studies. In other words, merely keeping Black retirees off the poverty line is no great cause to celebrate. Neither is moving Black workers up from an abysmally small amount of retirement savings to the same disappointingly small amount as White workers. See This is a Low Bar section below for the in-depth explanation.

Finally, I take the knowledge established in the findings and apply them to the Golden Albatross framework. I discuss several ways the Golden Albatross can be modified to better accommodate Black pensionable workers. From this White-guy’s point of view, doing so would help Black workers make a more well-informed worth vs. worth it decision. However, I fully admit that modifying the framework is best left to the individual worker, since only they know their specific circumstances. See all three of The Golden Albatross for Black Workers sections for in-depth explanations.

Finding #1: DBPs Keep Black Retirees Out of Poverty

In 2012, the National Institute on Retirement Security (NIRS) reported that pension income reduced the percentage of “Non-Hispanic Black” retirees living below the U.S. poverty line from 26.9% to 2.9% (Porell & Oakley, 2012). In other words, nearly 27% of the Black retirees without access to a DBP lived in poverty, while only 3% of Black retirees with access to a DBP did. The report also showed that DBPs reduced the number of “near-poor” Black retirees from 35% to 22%, and increased the number of “not poor” Black retirees from 38.1% to 75%. Those are hugely positive effects, which make a strong case for the idea that Black pensions matter.

Possibly as important, if not more, was the finding that DBPs shrunk the racial disparity between White and Black poverty levels in retirement. For instance, 12.4% of White retirees without a DBP live in poverty, compared to the previous cited 26.9% for Black retirees without a DBP (Porell & Oakley, 2012). That’s a 14.5% difference. However, for White and Black retirees with access to DBPs, those numbers drop to 1.5% and 2.9%, respectively (Porell & Oakley, 2012). That’s only a 1.4% difference, which means that DBPs both keep Black retirees out of poverty and serve as a great equalizer between them and their White counterparts when it comes to retirement outcomes. The report also noted that DBPs significantly reduced the retirement outcome disparities between male and female retirees and White and “Hispanic” retirees (Porell & Oakley, 2012).

The theme that pensions act as an equalizer when comparing retirement wealth between White and retirees from other racial-ethnic groups is not new. A 2000/2001 Social Security Administration bulletin noted that pensions significantly reduce the retirement savings wealth gap between Black and Hispanic workers compared to their White counterparts (Choudhary, 2001). James Smith also found something similar in his 1995 article in the Journal of Human Resources (Smith, 1995).

Getting back to the NIRS report, the good news doesn’t stop there. It also showed that DBPs reduce material hardships for Black retirees; material hardship disparities between Black and White retirees; and retiree reliance on public assistance (Porell & Oakley, 2012). In this case, material hardships meant food, shelter, or healthcare. In contrast, public assistance meant some sort of public subsidization for the poor like food stamps. For the food and shelter categories, Black retirees with access to DBPs reported 50% fewer hardships than their retired non-DBP-earning peers (Porell & Oakley, 2012). The effect on healthcare hardships was less pronounced but still statistically significant. So too was the reduction of racial disparities between White and Black retirees for those same material hardship categories (Porell & Oakley, 2012).

Similar material hardship disparity reductions (but not eliminations) were noted between male and female retirees and Hispanic and White retirees with DBPs (Porell & Oakley, 2012). The pattern also repeated in the percentages of White and Black retirees without DBPs receiving public assistance versus those with DBPs (Porell & Oakley, 2012). This is all to say that Porell and Oakley showed that DBPs create an overly positive effect on retirement outcomes for Blacks, women, and other retirees of color. Combine these findings with the fact that Black and Hispanic workers possess a drastically smaller number of non-DBP retirement assets than their White counterparts (Smith, 2020; Morrisey, 2016; Rhee, 2013; Choudhary, 2001, Smith, 1995), and the positive impacts from DBPs on retirement outcomes for retirees of color appear all the more significant.

Finding #2: Black Workers Prefer DBPs Over Other Retirement Savings Plans

Retirement savings plan preferences for Black workers is an area with more research and data than Finding #1. Several studies show that Black workers prefer DBPs over Defined Contribution (DC) retirement plans. Clark et al. (2006) studied the retirement plan choices of new faculty hires within the University of North Carolina system from 1983  to 2001. During that time, newly hired faculty had to choose between enrolling in a DBP or a DC plan. Clark et al. (2006) found that freshly hired Black faculty were 22% more likely than their White counterparts to enroll in the DBP plan. That statistic rose to 45% at the Historically Black Colleges in the North Carolina system (Clark et al., 2006).

Chingos and West (2013) found similar preferences among Black and Hispanic primary and secondary teachers in Florida. They showed that Black and Hispanic teachers were approximately 13% less likely to choose a DC plan over a DBP plan than their White counterparts. (Chingos & West, 2013). Goldhaber and Grout (2014) noted that “non-White” teachers in Washington state were significantly less likely to switch to a new DC-DBP hybrid plan in 1997, despite the incentivization of a bonus worth 65% of their current pension’s value if they changed plans. Goldhaber and Grout (2014) also found that more newly-hired Black and Native American teachers from Washington state in 2007 actively chose the DBP plan versus the (default) DC-DBP hybrid.

The above studies only hint as to why Black workers prefer DBPs over DC retirement plans, and those hints are not conclusive. The prevailing theory posits that Black workers prefer less risky savings and investment mechanisms (Farrell, 2011; Halek & Eisenhauer, 2001; Hurst, Luoh, & Stafford, 1998). Since DBPs represent a far less risky form of retirement savings, more Black workers choose DBPs over DC retirement plans (Goldhaber & Grout, 2014). That said, Clark et al. (2006) point out that not all empirical studies confirm the risk aversion theory.

Another theory posits that the pre-disposition to invest in stocks is a learned trait passed on generationally through families (Farrell, 2011; Chiteji & Stafford, 1999). Black families are far less likely to own stock investments than White families due to systemic economic discrimination (Smith, 2020; Bond, 2017; Cooper et al., 2012). As a result, Black workers are less inclined to use DC plans and direct their investments themselves (Farrell, 2011). This is a nurture argument rather than a nature argument, meaning the researchers don’t believe Black workers can’t figure out how to invest in stocks. Instead, they’re stating that entry barriers for stock market investing are much higher for Black workers because they probably didn’t have investing role models in their family (Farrell, 2011).

Take the last theory for what it’s worth. It’s a theory after all, which doesn’t mean it’s correct. That said, if the theory is correct, then the inverse conclusion should also be true. In other words, if the parent(s) of a Black worker participated in a DBP plan, then that Black worker would be predisposed towards choosing a DBP, if or when the opportunity presented itself. This last point makes a great segue because the “if or when” nature of that inverse conclusion is the third finding from my research!

Finding #3: Black DBPs Link to Crucially Important Black Jobs and Professions

Black retirees cannot use a pension’s positive effects, as explained in Finding #1, if they did not work in a pensionable job or profession before they retired. Nor can current Black workers choose a DBP retirement plan over a DC plan, as described in Finding #2, if they don’t work in a pensionable job or profession. Thus, the decision to work a pensionable job forms the crucial first step in a chain of events that leads to a much higher likelihood of a positive retirement outcome. Not surprisingly, it’s a decision Black workers make at a higher than average rate when compared to the overall U.S. workforce.

Higher than average Black participation rates in pensionable career fields date back to the 1960s and the beginning of desegregation and the equal rights movement in the U.S. (Hiltonsmith, 2016). The public sector is one of the main areas where the data demonstrate this trend (Aubry & Wandrei, 2020; Census Bureau, 2017; Collins, 1983). For instance, from 1961 to 1965, as the U.S. Federal government started to seriously undertake desegregation, 28% of new Federal hires were Black even though Blacks only made up 10% of the population (Hiltonsmith, 2016). According to the U.S. Office of Personnel Management, by Fiscal Year (FY) 2014, Blacks made up 18.1% of the permanent U.S. Federal workforce (FEDweek, 2016).

Higher than average employment numbers for Blacks are replicated at state and local government levels (Collins, 1983). For example, in 2011, Black workers accounted for 10.9% of the overall employed U.S. workforce (Cooper et al., 2012). Still, they accounted for 12.8% of public sector workers at the state and local level (Cooper et al., 2012). By 2019 those figures climbed to 12% and 13.5%, respectively (Cooper & Wolfe, 2020).

That said, as I pointed out in Part 22 of the Pension Series, the COVID-19 pandemic’s costs put state and local governments’ budgets into a tailspin. Furthermore, given the U.S. Federal government’s inability to pass and fund a second COVID-19 relief package, budget relief isn’t coming in 2020. Therefore, everyone should expect large amounts of permanent layoffs at the state and local government levels as budget trade-offs are made to meet balanced budget requirements. These layoffs will disproportionately impact Black workers, given their higher than average participation rates at state and local public sector levels (Cooper & Wolfe, 2020), just like the Great Financial Crash (Cooper et al., 2012).

Government jobs aren’t the only area where Blacks disproportionally sought employment over the decades, and where DBPs are the retirement norm. Union jobs also fit this description. The disproportionate effect is typically more prominent in the unionized workforce than in the public sector. For example, in 1983, Black workers made up 13.7% of the unionized U.S. workforce, while Black workers overall only made up 9.7% of the U.S. workforce (Bucknor, 2016). That disproportionate effect persisted, although at a smaller rate. The numbers in 2015 sat at 14.1% and 11.9%, respectively (Bucknor, 2016).

While it’s clear that Black workers prefer some pensionable career fields, it doesn’t mean that the provision of a DBP is the sole or even the primary reason why Black participation rates are higher than average in those fields. In fact, pensionable professions like government and unionized trades are also the same type of occupations that Black workers view as a path to the middle-class or to stay in the middle class (Cooper & Wolfe, 2020; Bucknor, 2016; Hiltonsmith, 2016). They’re also seen as more equitable. By that, I mean compensation gaps between White and Black workers are smaller (Bucknor, 2016; Cooper et al., 2012). Of course, pensions play a role, but to pick apart the pension impact versus the other two reasons would be hard, if not impossible. As a result, just know that access to a pension is one of three main factors that explain why Black participation rates are higher in specific career fields than others.

Finally, I should also note that union jobs and government jobs aren’t mutually exclusive for Black workers or any other workers for that matter. Meaning, a Black public worker in a state government job can also be part of a union. Thus, the overlapping makes picking apart a pension’s role in drawing Black workers to a job all the more challenging. That said, it’s evident that for a certain percentage of Black workers in the U.S., they see and take advantage of the synergy that unionized public jobs create. The graph below demonstrates that.

Caveats and Context

Now that I’ve overwhelmed your logic circuits with three well-researched findings let me put those findings into perspective with a few caveats and some context. By doing so, I hope to provide a more holistic view of the issues before analyzing them through the Golden Albatross framework. I’ll start with one significant weak spot.

Simply put, there aren’t many studies about the impact of DBPs on racial and ethnic minority groups and their retirement. No studies examine what role DBPs play in retirement outcomes for Black retirees specifically. I make that assertion while possessing extensive access to numerous online academic journal databases through my Master’s in Applied Management program. I literally spent weeks’ worth of what little free time I had running searches through business and economic journal databases, only to find a handful of supporting studies.

In fact, the main article I cite in for Finding #1, the Porell & Oakley, 2012 study, didn’t even come from a journal. I found it through Google Scholar on an economic think tank’s website. But, it was written at an academic level and updated a published academic journal article from 2009. It also analyzes a data set from “the premier source of information for income and program participation” collected by the U.S. Census Bureau, known as the Income and Program Participation (SIPP) study. Moreover, what little information I could find about Porell and Oakley’s specific points (e.g., pension as an equalizer issue) supports their overall findings. So, from a quality control point of view, I think the conclusions are legitimate.

However, my military career taught me to view any report based on a single data source skeptically until corroborated by other sources. Taking action on a single source report often means you live or die by that source’s credibility. Furthermore, the entire scientific process that permeates economics relies on the idea that researchers should be studying and trying to replicate other researchers’ work to determine its validity.

Yet, this is where you start to run into the effects of systematic discrimination in the field of economics. Unlike Black workers in the public sector and unions, Black economists are few and far between. As an example, only 3% of the Ph.D.’s in economics awarded in the 2015/2016 academic year were to Black students (CSMGEP, 2017). This is right in line with the fact that only 3 – 5% of U.S. economists are Black (Garcia & Smith, 2020; CSMGEP, 2017). Therefore, the types of economists with the most (theoretical) vested interest in studying Black pensions simply do not exist.

A general lack of interest in studying DBPs among scholars doesn’t help, either. I call it the “no one has a pension anymore” stigma. This lack of academic research into DBPs makes it hard to draw definite conclusions generally. Still, it is even more problematic when studying pension impacts broken out by race, sex, or ethnicity.

This Is What Systematic Economic Racism Looks Like 

The lack of Black economists is a problem in and of itself. It also serves as a good indicator of the larger issue of systemic racial-based economic discrimination in the U.S. Time and again, while researching this article, I ran into the well-documented fact that Black workers earn a lot less than their White counterparts (Bucknor, 2016; Proctor et al., 2016; Hiltonsmith, 2016; Cooper et al., 2012; Lazear & Rosen, 1987). Numbers are all over the place, based on how a report measures the issue. By far, the worst gap I found came from a 2016 U.S. Census Bureau paper that reported the median wage gap between Black and White workers in 2015 was 56 cents to every dollar, respectively (Proctor et al., 2016).

The Black to White median pay gap ratio is the worst race-based ratio by far. For instance, the Hispanic to White ratio was 72 cents to every dollar, respectively (Proctor et al., 2016). Surprisingly, the “Asian” to White ratio was actually one dollar and 23 cents to every one dollar, respectively (Proctor et al., 2016). I guess congratulations are in order. The Asian American workers figured out a way to stick it to “The Man.”

Jokes about sticking it to “The Man” aside, the Black-White wage gap doesn’t merely impact follow-on retirement-related issues but affects them exponentially. By that, I mean a lifetime of depressed wages equals less money to save and invest. Therefore, there’s less money to take advantage of the miracle of compound interest/rates of return (Smith, 2020). As proof of that, consider this. In 2013, the average Black retirement account only had $20,100 in it, while the average White retirement account had $111,700 (Rhee, 2013).

The above disparity is over five times smaller and assumes the Black worker even has a retirement account. Unfortunately, that’s a big assumption. In 2010 only 38% of Blacks had retirement accounts with assets in them (Rhee, 2013). Those of you thinking that stat can’t possibly be right since Black workers should have retirement account access through work, think again. In 2012, only 54.3% of Black workers had access to a retirement account through work, compared to 62.3% of Whites (Rhee, 2013). That’s not the entire story since the take-up rate was only 43.9% for Black workers, while 53.8% for White workers (Rhee, 2013). By 2016, that rate improved slightly for Black workers to 46% (Munnell et al., 2018). And, if you haven’t figured it out already, care to hazard a guess as to what the most significant indicator for take-up rate is? If you guessed earnings level (Rhee, 2013), then have a beer on me. You’re going to need it before the next section!

The same sort of story plays out with home equity, which many economists consider a future form of retirement income through the use of reverse mortgages (Smith, 2020). Less pay equals less home equity built up in advance of retirement. Specifically, in 2016 the median amount of home equity for Black families was $49,000 (Munnell et al., 2018). It was $65,000 for Hispanic households and $86,000 for White households (Munnell et al., 2018). Again, though, that assumes Black workers can afford their own home, which is no safe assumption with a homeownership rate of 42% in 2016 compared to 47% for Hispanic and 73% for Whites (Munnell et al., 2018).

The only place where Black workers even remotely approach parity with White workers regarding retirement investment/savings vehicles is DBP coverage. I say that because, in 2010, 21.8% of Black households had DBP coverage, whereas 24.1% of White households did (Rhee, 2013). If you weren’t sleeping through Finding #3, you already know why this is the case. In other words, it’s due to the higher than average percentage of Black workers in public and union jobs.

This Is a Low Bar, People!

I feel compelled to point out just how low of a bar some of these categories set on the whole and between the racial groups. For example, we shouldn’t celebrate the simple fact that DBPs keep retirees (of all colors) off the poverty line or from needing food stamps in retirement. That’s hardly a great measure of success. That’s what Social Security is for, assuming a person worked a job that participates in it. Porell & Oakley (2012) discuss this issue and point out the real measure of success for DBPs is the percentage of retirees moved into the “not poor” category. Or, in other words, the retired middle class.

Close in my mind to the low bar comment is that the racial retirement wealth/income gap comparisons are false dichotomies in many cases. Moreover, these false dichotomies run the risk of creating a zero-sum mentality among the races regarding the retirement wealth gap. However, as Munnel et al. (2018) point out, “documenting that gap … says little about the retirement preparedness of these households.”

Take, for example, the fact that White households had $111,700 on average in retirement savings in 2013 (Rhee, 2013). Yes, it’s five times more than Black households, and we should all help fix the systematic problems and close those retirement savings gaps between the racial groups. But, $111,700 is not nearly enough for a 30-year retirement. No one should be under any illusions that if the U.S. gets Black households to this same level, their retirement problems would be solved. The way I see it, a shit sandwich shared more equitably, still means everyone’s eating shit. But hey! At least those Black and White households can wash those sandwiches down with the lemonade they’re always being forced to make by “The Man”.

A Few More Caveats: Finding #2

If you were awake during Finding #2, you might have picked up on a subtle theme regarding the subject groups studied in the journal articles I cited. They were all teachers or professors. This means the conclusions I’ve drawn from those articles are based on a slice of the Black workforce who are at least college graduates, if not postgraduates. Unfortunately, that’s not an overly representative sample of the Black workforce in the U.S. as a whole. It would be great if it was, but according to the U.S. Bureau of Labor Statistics (2019), only 31% of Black workers held an undergraduate or higher degree in 2018.

This is one of the problems with the type of natural experiments that I mentioned in the executive summary. Researchers don’t get to choose where these natural experiments occur. Furthermore, the data stemming from those natural experiments must be captured in a form that researchers can analyze. As a result, researchers get what they get in terms of subjects. It just so happened that teachers and professors were presented the DBP vs. DC choice a lot in the last two decades.

What does this mean to you? If you’re not a college graduate, it should mean that the findings are less indicative of your situation. On the other hand, maybe you think that Black teachers and professors should (theoretically) be the best equipped to navigate stock market investing risks based on their education levels. As a result, when you see them picking DBPs vice DCs as their retirement plan, maybe you think they’re on to something!

In either case, it’s finally time to discuss how all these findings might alter the Golden Albatross worth vs. worth it pension decision framework for Black workers.

The Golden Albatross for Black Workers: Suppressed Pay 

Based on everything I’ve presented up to this point, I believe it’s important to note several things about the Golden Albatross framework. The first is that race doesn’t impact three of the most objectively valuable features of a pension used in the worth vs. worth it decision. COLAs, vesting periods, and pay-out timelines are blanket policies that apply equally to all retiring workers in the plan.

That said, it’s worth noting how most pension calculation formulas interact with the suppressed wages that Black workers experience over their careers compared to their White counterparts. Granted, pension value formulas are uniformly applied to all retiring workers. However, any pension formula that uses an annuity calculation based on the average final salary (or an average of a certain number of highest-paid years) will produce a higher pension value for the workers paid more throughout their career. And, since the average Black worker is paid 56 cents to every dollar an average White worker earns (Proctor et al., 2016), the annuity formula cements the pay disparity for retirement. Nobody ever said all the effects from DBPs were good for Black workers and retirees.

Yet, the retirement pay disparity doesn’t necessarily make the pension any less valuable to a Black retiree. For example, in 2014, public sector pensions made up 12% of the average Black retiree’s income. In contrast, it only made up 9% for the average White retiree (Hiltonsmith, 2016). So, even though Black pensioners receive smaller pensions than their White counterparts on average, the pensions themselves mean more to the Black retirees. In no way does that excuse the larger systematic issue of pay discrimination, but it does speak to the larger proportional effect that pensions have on Black retirees’ successful outcomes.

Knowledge is power. Understanding how DBPs cement work pay disparities into a permanent retirement pay disparity provides yet more ammunition for Black pensionable workers to demand equitable pay. Or, alternatively, look for pensionable jobs where the pay disparity is less. Not coincidentally, this is one reason Black workers select unionized and public sector occupations in the first place. The pay disparities in those sectors are significantly reduced between Black and White workers (Hiltonsmith, 2016; Bucknor, 2016).

The Golden Albatross for Black Workers: Healthcare

Up to this point, I haven’t talked about pension linked healthcare much, and to be honest, I don’t want to rehash something I’ve written about extensively. That said, reliable healthcare in the U.S. for chronically underserved communities like African-Americans is essential (Noonan et al., 2016; Williams & Rucker, 2000). Plus, Finding #1 noted that DBPs significantly reduce medical caused fiscal hardships for Black retirees (Porell & Oakley, 2012). As a result, heavily weighting pension linked healthcare in the worth it (i.e., stay) category may be appropriate for some Black workers. As is the case with the generic retiree, though, that all depends on the worker’s medical history and how close they are to Medicare eligibility.

The Golden Albatross for Black Workers: Greater Caution

From a subjective point of view, I believe my findings justify Black workers exercising greater caution when deciding to leave pensionable jobs. By greater caution, I mean greater caution than their White peers. I say that because a DBP, and the job attached to it, deliver more significant successful life outcomes for a Black worker than a White worker, as was discussed in Findings #1 & #3.

And yes, as unsavory as it may be, my advice is tinged with an acceptance of systemic economic discrimination and racism. Unfortunately, since Black workers are less likely to find the same employment and pay opportunities as Whites (Smith, 2020; Hiltonsmith, 2016), to bounce from a job with a pension to one without for something like higher pay is a process wrought full of more unknowns than for White workers. This isn’t a fair set of circumstances, but it is the reality in the U.S. currently. And, I deal in facts when it comes to retirement planning. With a pseudonym like Grumpus Maximus, you should know that I’m not going to try and sell you one of those aforementioned shit sandwiches by calling it the best PB&J you’ll ever eat.

My acceptance of the systematic situation notwithstanding, the “greater caution” recommendation is a personally painful one considering my decision to gut it out for my pension at the risk of my mental health. I know what that “I need to stay for the pension” feeling can do to a person, no matter their race. However, since you’re reading this article on my website, take note that it contains numerous resources to help you through your “gutting it out” situation. Just go to my Article Index and check out the planning and mental health articles.

The Golden Albatross for Black Workers: Pension Safety 

Assuming Black workers feel more inclined/pressured to stay at their pensionable jobs than White workers, then determining their pension plan’s fiscal safety should be an absolute priority for a Black worker. I say that because there aren’t many good reasons for staying at a pensionable job if the pension is not going to materialize as promised. For example, the average Public Pension Plan (the type that Black state and local government workers participate in) is underfunded by 29% against all current and future obligations (Aubrey et al., 2020). If you’re a participant in a public pension plan you may want to check out Part 22 of the Pension Series, as I deep dive on the topic of public pension funding.

Yet, that’s just an average. Many Public Pension Plans are fully funded, but others are less than 20% funded against all current and future obligations. Depending on your state or locality, you may be fine, or you may be screwed! So, determining your pension fund’s fiscal health is extremely important because that issue alone may dictate if you should stay or leave a pensionable job. If you don’t know where to start or how to do it, check out Part 1 of the Pension Series. I wrote it to help people just like you.

The Golden Albatross for Black Workers: The Gap Number

In conjunction with determining their pension plan’s safety, Black workers should also calculate their Gap Number. By doing so, they can determine how much of their retirement budget the DBP will cover. A pension that covers most retirement expenses (therefore making the Gap Number small) is objectively worth more than a pension that doesn’t.

That assumes a worker knows what their retirement budget will be, which can be a big assumption. Most people (regardless of race) don’t know. Not knowing may or may not be a big problem, depending on how far away retirement is for a Black worker. I’ve written numerous articles about tracking spending, building a retirement plan, and then testing it. My Gap Number article links to them, so if you’re ready to start, go there and utilize the article’s links. Alternatively, if this all too much for you, and you don’t know where to start, drop me a line at grumpusmaximus@grumpusmaximus.com, and I’ll help steer you to the content as time permits.

Finally, I’ll leave you with this last nugget of knowledge. If you’re at crossroads in life concerning your pension, then remember that everyone’s circumstances are different — even among people of the same race. As a result, no two Golden Albatross worth vs. worth it pension decisions are the same. The more you take the information from this article and personalize it for your specific pension decision, the better off you will be.

Conclusion

This is a long article, even by my standards. Apparently, I had a lot to say about Black pension matters and how the Golden Albatross should be modified as a result. I hope you found it informative and would love it if you left some feedback at the bottom of this page.

Finally, my sincerest hope is that personal finance articles based on race won’t be necessary one day. But, I’m under no illusion that day is tomorrow. Still, if we use Dr. King’s words as a guide and work towards that goal, maybe one day soon it will be:

We must come to see that the end we seek is a society at peace with itself, a society that can live with its conscience. And that will be a day not of the white man, not of the black man. That will be the day of man as man. (King, 1965)