Sounding the Alarm on Gender Inequality in Retirement

In a recent U.S. House of Representatives Health, Employment, Labor and Pensions Subcommittee hearing, members discussed how Congress can improve workers’ retirement readiness and increase access to mental health benefits in the workplace.

In his opening statement, Subcommittee Chairman Mark DeSaulnier, D-California, said that even as the economy continues to recover, constituents still struggle with higher costs caused by the pandemic. He said that Congress needs to help workers and retirees achieve financial stability, including a secure retirement. This must also include expanding access to high-quality health care, which includes mental and behavioral health resources, he said.

Roughly 55 million Americans are 65 or older and many are working later in their lives, relying on their next paycheck to make ends meet, DeSaulnier said. The Federal Reserve has indicated that many Americans would struggle to come up with $400 to pay for an unexpected expense, he noted, with too few earning enough to save for a dignified retirement.

Similarly, DeSaulnier said, health care is often unaffordable for workers and their families, with less than half of individuals with mental illness receiving the necessary treatment.

Members said the committee has made efforts to improve the retirement security of workers, for example with the advancement of the Retirement Improvement and Savings Enhancement Act. Additionally, both Democratic and Republican committee members emphasized Congress’ role in strengthening health benefits though efforts to improve enforcement of the Mental Health Parity and Addiction Equity Act.

A Lens on Retirement Inequity

During the hearing, committee members discussed draft legislation that seeks to make improvements to the nation’s retirement system, such has helping 401(k) participants better understand the fees they pay on investments, increasing lifetime income options in 401(k) plans, and encouraging emergency savings. They also discussed steps the Biden-Harris Administration has taken to reverse rules that, according to Democratic members in the majority, would make it harder for retirement plans to consider climate change and other environmental, social and governance factors when selecting investments.

Throughout her testimony before the committee, Amy Matsui, National Women’s Law Center income security director, argued that women face a higher risk of economic insecurity throughout their lives, especially in their later years. She said retirement income from employer-sponsored pensions and individual retirement savings plans are essential.

“Women, especially women of color, face deep inequities in the workforce and our economy. Women in the U.S. who work full-time, year-round, are typically paid only 83 cents for every dollar paid to their male counterparts, and wage gaps are even larger for Black women, Native American women, and Latinas,” Matsui warned. “Women are overrepresented among part-time workers, and poorly paid workers. Women bear disproportionate responsibility for caregiving, and workers of color are the least likely to have access to affordable, high-quality childcare and the paid sick days and family and medical leave that enables them to balance work and caring for themselves and their loved ones.”

Income gaps and work-related disparities translate into lower lifetime earnings for women, meaning that over a 40-year career, women can lose $400,000 just based on the gender wage gap. That number increases to nearly $1 million for Black women and more than $1.1 million for Hispanic women, Matsui said. Because the primary sources of retirement income are based on employment earnings, being paid less than men means that women have fewer resources to save for retirement, including lower Social Security and pension benefits.  

“Taking time out of the workforce likewise reduces the earnings that women can contribute to retirement savings accounts and that are used to calculate Social Security and pension benefits. This lifetime impact falls most severely on women of color, who have the largest wage disparities and are more likely to act as caregivers,” Matsui said. “These are also among the reasons why women lag behind in accumulating assets and wealth more generally, which may make it even harder to earmark savings for retirement.”

Pandemic Fallout

The pandemic has had devastating health and economic impacts on women. This is because of increased caregiving responsibilities caused by closed schools, lack of child or elder care—or because the care for sick family members largely fell on women, Matsui said. Overall, women have lost nearly 1.8 million jobs since February 2020, and sectors in which women workers were overrepresented, such as front-line workers in health care, childcare and other essential services, suffered heavy job losses.

Women, women of color and lower-income workers who remain employed may have less access to retirement savings plans at work as poorly paid jobs are especially unlikely to offer retirement benefits, Matsui said. Those that do have access to retirement savings plans still have trouble contributing. With smaller paychecks, women are able to spare less income to save for retirement.

After penalties on withdrawals from 401(k) accounts were waived in 2020 under the CARES Act, 22% of women reported that they prematurely dipped into their retirement savings or stopped contributing altogether since the start of the pandemic, Matsui noted. One in three women said their financial situation is worse than it was before the pandemic, and of those women, the vast majority said their ability to save has worsened—further reducing women’s retirement savings.

Addressing Spousal Rights

For all of these reasons, married women tend to rely more heavily on their spouses’ income and savings than married men do, Matsui said. While there are spousal protections for defined benefit pension plans because of the Retirement Equity Act of 1984, those protections were not established for defined contribution plans.

“The REA’s requirement of the joint-and-survivor spousal annuity as the default form of benefit only applies to married DC plan participants if the plan offers an annuity benefit—and few DC plans have done so—and the participant spouse elects payment of benefits in the form of a life annuity,” Masui said. “This discrepancy in ERISA means that spouses lack the legal right to participate in the decision of whether the DC plan account balance will be received as a lump sum or as an annuity at retirement. The potential impact of this discrepancy on spouses’ retirement security has increased, as DC plans have increasingly supplanted DB plans.”

Under the current law, there is only one circumstance in which a participant in a DC plan must gain spousal consent, and that’s if the participant declines to choose an annuity form of benefit and they decide to designate a beneficiary other than the spouse, Mausi said. Consent is not required for hardship withdrawals or loans taken out against the DC account funds. Additionally, no spousal consent is required if the participant retires or changes jobs and decides to withdraw the account balance, meaning that there is nothing stopping the participant-spouse from taking actions that could deplete their retirement savings, potentially jeopardizing the other spouse’s future retirement.

Mausi argued that policymakers should strengthen spousal rights to DC plans by making the default form of benefit from DC plans a joint-and-survivor annuity if spousal consent is not obtained. She said strengthening spousal rights in DC plans under ERISA would help ensure women who rely on their spouses’ retirement savings do not risk economic insecurity because their spouse has depleted or given away retirement savings created during their marriage.