Turning Workers into Savers? Incentives, Liquidity, and Choice in 401(K) Plan Design

34 Pages Posted: 24 Jan 2006 Last revised: 16 Jan 2022

See all articles by Olivia S. Mitchell

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; University of Pennsylvania - The Wharton School, Pension Research Council; National Bureau of Economic Research (NBER)

Stephen P. Utkus

University of Pennsylvania; Center for Financial Markets and Policy, Georgetown University

Tongxuan Yang

University of Pennsylvania - Insurance & Risk Management Department

Date Written: October 2005

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.

Suggested Citation

Mitchell, Olivia S. and Utkus, Stephen P. and Yang, Tongxuan, Turning Workers into Savers? Incentives, Liquidity, and Choice in 401(K) Plan Design (October 2005). NBER Working Paper No. w11726, Available at SSRN: https://ssrn.com/abstract=838547

Olivia S. Mitchell (Contact Author)

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

University of Pennsylvania - The Wharton School, Pension Research Council ( email )

3302 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6302
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Stephen P. Utkus

University of Pennsylvania ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Center for Financial Markets and Policy, Georgetown University ( email )

Washington, DC 20057
United States

Tongxuan Yang

University of Pennsylvania - Insurance & Risk Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6365
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
79
Abstract Views
1,283
Rank
553,088
PlumX Metrics