Pensions, Risk, and Race

I. IntroductionMy scholarship, which examines the racial implications of tax policy, is predicated upon the belief that racial disparities are deeply imbedded in federal tax policy and that, with some hard work, the invisible appears. I have previously written about the racially disparate impact of the joint return provisions of the Internal Revenue Code on married Black couples.1 I examined census bureau data that showed that married Black couples were more likely than married White couples to pay a marriage penalty, and that married White couples were more likely than married Black couples to receive a marriage bonus.2 Recently, I applied that census bureau data to Social Security benefits for married couples and showed that married Black wives were far less likely than married White wives to receive spousal benefits.3 In addition, the data showed that spousal benefits for married Black couples were generally lower than for White couples. This is because Social Security benefits are generally lower for equal wage earning couples, and married Black couples were significantly more likely than married White couples to be in equal wage earning households.4I have also looked at data from the Survey of Income and Program Participation to analyze earned income tax credit (EITC) eligible recipients and found that, although conventional wisdom viewed the EITC as disproportionately benefiting Blacks, the empirical data prove otherwise.5 The typical EITC recipient is most likely White, and most Blacks are ineligible for the EITC.6 Most importantly, the Article shows that tax benefits for low-income families with children pale in comparison to those received by middle-class families with children and concludes that the only explanation is race based.7In light of recent corporate scandals and their highly publicized pension fund losses,8 as well as Federal Reserve Chairman Alan Greenspan's call for cuts in Social security benefits for future retirees,9 looking at the racial dimensions of employer-provided pension plans seemed a logical next step. Part II sets the backdrop for this Article by describing the tax benefits associated with employer-provided pension plans. Part III then examines the sources of income for retirees in America and demonstrates the importance of Social Security payments to communities of color. Part III also illustrates the potential importance of employer-provided pensions to those communities. If Social Security benefits are going to decrease for future retirees, those cuts will hit communities of color very hard. Finding alternative sources of funds will become crucial.Part IV then provides empirical data and examines who does and who does not receive employer-provided retirement benefits from a race-based perspective. Part IV makes several points. First, the majority (or near-majority) of all private sector workers are not covered by an employer sponsored pension plan. Second, while all racial and ethnic minority employees do not participate to the extent of their White counterparts, there are significant differences in participation among racial and ethnic group members. Third, even when workers of color are included in pension plans, their investment decisions differ from White workers, which may lead to lower account balances at retirement. Part IV concludes by observing that because employer sponsored pension plans exclude a majority of Whites and people of color, according to Professor Derrick Bell's interest-convergence thesis,10 this may be a unique opportunity to effectuate pension reform.II. Tax Treatment of Employer-Provided Pension BenefitsMuch has been made of the money lost to Enron's employees in the form of pension plans. Before the bottom dropped out, approximately $1.3 billion of retirement money was invested in Enron stock.11 Less has been made of the tax advantages that Enron employees received as participants of those pension plans.Employer-provided pension plans that meet certain requirements receive significant tax advantages. …