Does the Catch-up contribution policy improve retirement preparedness?

Over a quarter of U.S. adults are expected to retire in the coming decade, retirees with inadequate savings could face financial difficulties including having to rely on public welfare during retirement. Amid the rapid aging of the U.S. population, this article examines the causal effect of the Catch-up Contribution provision introduced in 2001 on retirement assets and nonretirement savings. We investigate the expectation that incentives for policy response vary by household income and if the policy led to crowd out of nonretirement household savings. The article uses data from the Survey of Consumer Finance from 1995 to 2016. We estimate the average and heterogenous treatment effects of the policy on retirement preparedness using triple difference-in-differences models. We find that the Catch-up Contribution provision increased contributions among middle- and high-income households, although low- and moderate-income also benefited from higher retirement assets. In addition, we find no evidence of crowd out of nonretirement savings, suggesting that the Catch-up Contribution provision was welfare-enhancing.