401(k) balances highlight major wealth gap, GAO says

investmentnews.com:

A review of 401(k)s shows account balances that are emblematic of widening wealth inequality among older Americans, the Government Accountability Office said in a report Thursday to Congress.

The account type, which is often championed as an important savings tool for the middle class, is utilized far more by those with income in the top 20%. While about 90% of people age 51 to 64 who were in the highest income quartile in 2019 had assets in a 401(k), that was the case for about 10% of workers in the lowest income quartile, the GAO found. While participation rates for the highest earners have remained mostly steady since 2007, they have decreased by half for low-income workers, according to the report. Meanwhile, participation rates for workers in the middle have been relatively flat, at just over 60%.

Median account balances grew $330,000, to $605,000, for households in the highest income quartile between 2007 and 2019, but they did not change significantly for the middle and lowest-income groups, which had balances of less than $100,000 and less than $50,000, respectively.

By race, 401(k)s are used much more commonly in the 51 to 64 cohort by white workers than Black and Latinx savers, at over 60%, versus 40% and 30%, respectively. Since 2007, participation by whites has been steady, but it has declined for Black and Latinx workers.

Median balances were also significantly higher for white households, at $164,000, than for all other races, at $80,300, according to the GAO.

There are numerous factors that contribute to wealth inequality, such as major disparities in home values and equity. But having a job that provides a 401(k) is one.

“Closing the access gap is one of the most important ways to reduce the inequities