This simple way to fix the wealth gap between Blacks and Whites is far better than reparations

Here is Bob Johnson’s better idea. 

The man who became America’s first Black billionaire after creating Black Entertainment Television (BET) is unveiling a plan to close the Black-White wealth gap. 

Johnson’s idea is to boost the number of Black people with 401(k) retirement accounts. 

It is a sharp contrast with decades of fruitless appeals for racial reparations to compensate for Black slavery and racial bias. That approach has failed while the racial wealth gap continues to grow.  

Johnson calls his plan to increase Black wealth a "business solution to a social problem." 

His strategy is to get low-wage workers, about 5.3 million workers with less than $5,000 in their retirement accounts, mostly minorities and women, to keep their money invested when they leave a job. 

Currently, close to 80% of those low-income workers cash out their savings plans when switching jobs. 

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If they keep their 401(k) plans, they can avoid taxes on cashed out accounts, while benefiting from compounding interest and investment returns. 

Based on data from the Employee Benefit Research Institute, Johnson estimates that by helping low-income Black workers retain their retirement accounts he can add "$600 billion over a generation" to Black America’s wealth. "That is a pretty big number, and it is unheard of in terms of a public policy initiative. This puts money in people’s pockets." 

"BET will always be a huge achievement for me personally," Johnson told me. "But this will have far more impact on the Black community than anything I have ever done … and I think anything any other Black American has ever done to build wealth in the Black community." 

Johnson agreed to talk about his plan because he wants to raise awareness among Black workers, so they will take advantage of it when it starts in July. 

Johnson’s effort fits with an ongoing drive by several Black leaders in the financial industry to raise the capital necessary for Black corporate leaders to buy existing, white-owned large companies. They want to put Black-owned companies into the top tier of American commerce to overcome bias against the typically small, low-capital companies owned by Blacks. 

Based on data from the Employee Benefit Research Institute, Johnson estimates that by helping low-income Black workers retain their retirement accounts he can add "$600 billion over a generation" to Black America’s wealth. "That is a pretty big number, and it is unheard of in terms of a public policy initiative. This puts money in people’s pockets." 

"I want successful Black men and women, high net worth individuals, to start thinking about what we can do as a collective to create wealth in the Black community as a whole by using public policy mechanisms," Johnson said in an interview. "The best public policy mechanism is the tax code. We have to look at the tax code to create wealth the way corporations do…" 

The gap in wealth between Black and White American families remains a principal fault line in America’s racial divide. 

Less than half of Black Americans have a retirement account and only a third have any money in stocks.  

While the median White family had $184,000 in wealth in 2019, according to a Treasury department study, the median Black family had only $23,000. Hispanic families were also trailing in wealth accumulation with a median holding of $38,000.  

In addition, more than half of Black households have income less than $30,000. The result is that Black Americans have more debt and use more of their income to pay off those debts.  

The gap in wealth dividing the races narrowed for most of the 20th century as the civil rights movement gained new legal protections for Black people against discrimination in hiring, housing and voting. But the gap has stopped closing for the last 40 years.  

And the central reason for that stagnation, according to a study by the Federal Reserve Bank of Minneapolis, is "the capital gains rate experienced by Black and White households." Less than a third of Black households have stock investments as compared to more than half of white households. 

In other words, people with investments in the stock market have seen gains while others have not. 

Also, Black workers are more likely than White workers to be in lower paying jobs in retail and personal services. Those jobs often are less likely to offer employee benefit plans, such as health insurance and retirement accounts where employers make matching contributions. 

The result is that minority families, especially Blacks, have more difficulty saving the money needed to invest and build wealth for retirement. 

The premise of Johnson’s plan is to make it easier for Black people switching jobs to stay in the stock market.  

Again, his idea is to increase Black wealth through current economic rules instead of placing distant hope in some day seeing reparations. 

Ten years ago, recruited a veteran retirement industry executive, Spencer Williams, to create the structure for seamless transfer of 401(k) accounts.  

Williams told him the technology was possible. But first, Williams needed "a letter from the Labor Department."  

After investing $20 million of his own money and several years of using his political connection to jump through bureaucratic hoops, Johnson got government approval. The plan became law in December, helped along by Senators Sherrod Brown, D-Ohio, and Tim Scott, R-SC, as part of a retirement bill, SECURE 2.0. 

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Now the challenge is persuading low-income Black workers not to take a short-term windfall by cashing out of retirement plans when they move to a new job. Sixty percent of Black workers and 57 percent of Hispanic workers, studies show, opt to empty their retirement accounts when leaving a job.  

And the central reason for that stagnation, according to a study by the Federal Reserve Bank of Minneapolis, is "the capital gains rate experienced by Black and White households." Less than a third of Black households have stock investments as compared to more than half of white households. 

Through one of his companies, Retirement Clearinghouse, Johnson has deals with America’s largest 401(k) companies, Fidelity, Vanguard, Alight Solutions, Empower and TIAA, to bring their corporate clients – with more than 60 million workers – into the new service called "auto portability. 

The key will be making the case to low wage earners that they have the power to make money for themselves by remaining invested from job-to-job. He is after a cultural shift that gets workers to see that money as a long-term asset as opposed to a way to pay a car repair bill.  

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Johnson estimates that $92 billion in savings leaves the U.S. retirement system when Americans prematurely close retirement accounts and face taxes and penalties for withdrawing the funds. For Black individuals it could mean more quickly reaching $10,000 in retirement accounts, reducing the average age from 37 years old to 31. 

"What I’m trying to do is send a message to Black workers," said Johnson. "I want them to know that a Black man, working with the largest 401(k) firms, created a platform to help them keep their money, build on the savings and wealth that comes from their own work." 

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