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Social security personal-account participation with government matching

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  • ENGELHARDT, GARY V.
  • KUMAR, ANIL

Abstract

This paper examines the potential impact of government matching contributions on personal-account participation in the President s Commission on Strengthening Social Security s Model 3 for Social Security reform. Given the government s choice of four plan-design parameters, the magnitude of the match is determined solely by the differential return personal-account assets receive above the notional return, referred to as the personal-account premium , akin to the equity premium. The impact of matching on personal-account participation is simulated for older workers (ages 40 to 65) in the first wave of the Health and Retirement Study (HRS) using empirical estimates from a structural model of the impact of employer matching on participation in corporate 401(k) plans. For a personal-account premium of three percentage points, which implies a match rate of 7.5% for middle- to lower-income workers, the simulations imply that 72% of mid-career and older workers would participate in voluntary personal accounts. The response of participation to matching is very inelastic; it seems not unlikely that participation by mid-career and older workers would achieve the mid-range assumption by the Commission of 67%. There is substantial heterogeneity in participation across subsets of older workers: participation would be the lowest for low-educated, minority, female, and unmarried mid-career and older workers.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Journal of Pension Economics and Finance.

Volume (Year): 4 (2005)
Issue (Month): 02 (July)
Pages: 155-179

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Handle: RePEc:cup:jpenef:v:4:y:2005:i:02:p:155-179_00

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Cited by:
  1. Engelhardt, Gary V. & Kumar, Anil, 2007. "Employer matching and 401(k) saving: Evidence from the health and retirement study," Journal of Public Economics, Elsevier, vol. 91(10), pages 1920-1943, November.

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