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What can the life-cycle model tell us about 401(k) contributions and participation?

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  • LOVE, DAVID A.

Abstract

This paper solves and simulates a stochastic life-cycle model of an economy with 401(k) plans. We use the model to establish a benchmark for patterns of contributions and participation and show how these patterns depend on such features as employer matching, vesting policies, and the ability to make early withdrawals. Consistent with empirical studies, the model predicts relatively low participation rates among younger workers and shows that these rates tend to rise with more generous matching, lower vesting periods, and improved liquidity.

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Bibliographic Info

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

Volume (Year): 6 (2007)
Issue (Month): 02 (July)
Pages: 147-185

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Handle: RePEc:cup:jpenef:v:6:y:2007:i:02:p:147-185_00

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Cited by:
  1. Andras Simonovits, 2009. "A Simple Model of Tax-Favored Retirement Accounts," IEHAS Discussion Papers 0915, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  2. Hans Fehr & Manuel Kallweit & Fabian Kindermann, 2011. "Should Pensions be Progressive? Yes, at least in Germany!," CESifo Working Paper Series 3636, CESifo Group Munich.
  3. Timothy Jun Lu & Olivia S. Mitchell, 2010. "Borrowing from Yourself: The Determinants of 401(k) Loan Patterns," Working Papers wp221, University of Michigan, Michigan Retirement Research Center.
  4. Hans Fehr & Fabian Kindermann, 2010. "Pension Funding and Individual Accounts in Economies with Life-cyclers and Myopes," CESifo Economic Studies, CESifo, vol. 56(3), pages 404-443, September.
  5. Le Blanc, Julia & Scholl, Almuth, 2011. "Optimal savings for retirement: The role of individual accounts and disaster expectations," Discussion Paper Series 1: Economic Studies 2011,33, Deutsche Bundesbank, Research Centre.
  6. Geng Li & Paul A. Smith, 2009. "New evidence on 401(k) borrowing and household balance sheets," Finance and Economics Discussion Series 2009-19, Board of Governors of the Federal Reserve System (U.S.).
  7. Hans Fehr & Manuel Kallweit & Fabian Kindermann, 2009. "Marital Risk, Family Insurance, and Public Policy," SOEPpapers on Multidisciplinary Panel Data Research 226, DIW Berlin, The German Socio-Economic Panel (SOEP).
  8. Geng Li & Paul A. Smith, 2008. "Borrowing from yourself: 401(k) loans and household balance sheets," Finance and Economics Discussion Series 2008-42, Board of Governors of the Federal Reserve System (U.S.).

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