Employee Decisions with Respect to 401(K) Plans: Evidence from Individual-Level Data
26 Pages Posted: 26 Aug 2000 Last revised: 28 Apr 2023
Date Written: February 1994
Abstract
401(k) plans have been the most rapidly growing type of employer- provided pension plan during the last decade. This paper utilizes employee-level data from the 401(k) plan at a medium-sized U.S. manufacturing firm to analyze the participation and contribution decisions of workers eligible for this plan. Our analysis reveals two important features of 401(k) participant behavior. First, contribution decisions of eligible employees are relatively insensitive to the rate of employer matching on worker contributions. Most employees maintain the same participation status and contribution rate year after year, despite substantial changes in the employer's match rate at the firm we study. This suggests that employer matching may not be a critical factor in explaining the growth of 401(k) plans. Second, we find that institutional constraints on contributions, imposed either by the employer or by the IRS, are an extremely important influence on contributor behavior. About three quarters of eligible employees contributed at rates that place them at one of the 'corners' or 'kinks' in the 401(k) opportunity set. This finding must be recognized in any analysis of how changes in 401(k) plan provisions are likely to affect contribution levels.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Power of Suggestion: Inertia in 401(K) Participation and Savings Behavior
-
The Power of Suggestion: Inertia in 401(K) Participation and Savings Behavior
-
The Effects of Financial Education in the Workplace: Evidence from a Survey of Employers
By Patrick J. Bayer, B. Douglas Bernheim, ...
-
By Esther Duflo and Emmanuel Saez
-
By Esther Duflo and Emmanuel Saez
-
For Better or for Worse: Default Effects and 401(K) Savings Behavior
By James J. Choi, David Laibson, ...
-
The Illusory Effects of Saving Incentives on Saving
By William G. Gale, Eric M. Engen, ...