Effect of the Catch-Up Contribution Policy on the Racial Retirement Wealth Gap

Abstract The racial retirement wealth gap is a significant policy challenge; Black and Hispanic households have nearly three times lower retirement wealth than White Households. Federal catch-up contribution policies have sought to address the issue by providing additional tax incentives to encourage higher contributions from near retirees. This paper examines the effect of the Catch-up Contribution policy on disparities in retirement wealth. Using data from the Survey of Income and Program Participation, this paper exploits a natural experiment to estimate the effect of the Catch-up Contribution policy on several outcomes of retirement and non-retirement wealth including access, contributions and balances in retirement accounts, asset ownership, net worth and household debt. Our findings show the effect of the Catch-up Contribution policy varies significantly by racial group and retirement asset type. We find decrease in 401(k) account ownership and contributions among Hispanic individuals, but significant increase in invested assets and lower household debt for this group indicative of higher net worth. We find no significant effects on retirement wealth of Black households. Taken together, while the racial gap in retirement account ownership and contribution has widened, the policy contributed to marginal narrowing of the racial gap in retirement account balances, net worth and invested assets. JEL Codes: D14, D15, G51, J15, J26