Is the U.S. Retirement System Contributing to Rising Wealth Inequality?

Sebastian Devlin-Foltz; Alice Henriques; John Sabelhaus

doi:10.7758/RSF.2016.2.6.04

Abstract

Data from the Survey of Consumer Finances for 1989 through 2013 reveal five broad findings. First, overall retirement plan participation was stable or rising through 2007, though overall participation fell noticeably in the wake of the Great Recession and has remained lower. Second, cohort-based analysis of life-cycle trajectories shows that participation in retirement plans is strongly correlated with income, and that the recent decline in participation is concentrated among younger and low- to middle-income families. Third, the shift in the type of pension coverage from defined benefit (DB) to defined contribution (DC) occurred within—not just across—income groups. Fourth, retirement wealth is less concentrated than nonretirement wealth, so the growth of retirement wealth relative to nonretirement wealth helped offset the increasing concentration in nonretirement wealth. Fifth, the shift from DB to DC had only a modest effect in the other direction because DC wealth is more concentrated than DB wealth.

Copyright © 2016 by Russell Sage Foundation. All rights reserved. Printed in the United States of America. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Reproduction by the United States Government in whole or in part is permitted for any purpose. The analysis and conclusions are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. This paper was prepared for the Russell Sage Foundation conference, “Wealth Inequality: Sources, Consequences, and Responses,” October 30, 2015. We thank our colleagues at the Federal Reserve Board, Wojciech Kopczuk, Russell Sage, NTA, and SOLE conference participants, and the volume editors for many helpful comments. Direct correspondence to: Sebastian Devlin-Foltz at sebastian.j.devlin-foltz{at}frb.gov; Alice Henriques at alice.m.henriques{at}frb.gov; and John Sabelhaus at john.sabelhaus{at}frb.gov; Mail Stop 143, 20th and C Streets NW, Washington, D.C., 20551.

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