Working Paper: NBER ID: w11726
Authors: Olivia S. Mitchell; Stephen P. Utkus; Tongxuan Stella Yang
Abstract: We develop a comprehensive model of 401(k) pension design that reflects the complex tax, savings, liquidity and investment incentives of such plans. Using a new dataset on some 500 plans covering nearly 740,000 workers, we show that employer matching contributions have only a modest impact on eliciting additional retirement saving. In the typical 401(k) plan, only 10 percent of non-highly-compensated workers are induced to save more by match incentives; and 30 percent fail to join their plan at all, despite the fact that the company-proffered match would grant them a real return premium of 1-5% above market rates if they contributed. Such indifference to retirement saving incentives cannot be attributed to liquidity or investment constraints. These results underscore the need for alternative approaches beyond matching contributions, if retirement saving is to become broader-based.
Keywords: 401k plans; retirement savings; employer matching contributions; pension design
JEL Codes: J26; J32; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Employer matching contributions (J32) | Retirement savings behavior (D14) |
| Liquidity constraints (E51) | Participation in 401k plans (D14) |
| Investment constraints (G11) | Participation in 401k plans (D14) |