Advanced Search
MyIDEAS: Login to save this paper or follow this series

Employer Matching and 401(k) Saving: Evidence from the Health and Retirement Study

Contents:

Author Info

  • Gary V. Engelhardt

    ()
    (Syracuse University)

  • Anil Kumar

    ()
    (Center for Policy Research)

Abstract

Employer matching of employee 401(k) contributions can provide a powerful incentive to save for retirement. We examine the effect of matching on 401(k) saving accounting for non-linearities in the intertemporal budget set. We use detailed administrative contribution, earnings, and pension plan data from the Health and Retirement Study and estimate that the elasticity of contributions with respect to matching is 0.15-0.27 overall, with sixty percent of this effect on the participation margin and the remaining forty percent on the intensive margin. The estimated after-tax cross-price elasticity of 401(k) contributions with respect to IRA saving is -0.60, which suggests 401(k)s and IRAs are substitutes in tax-deferred saving. We find no evidence of endogenous worker sorting based on the discount rate to plans that offer matching.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://crr.bc.edu/working-papers/employer-matching-and-401k-saving-evidence-from-the-health-and-retirement-study/
Download Restriction: no

Bibliographic Info

Paper provided by Center for Retirement Research in its series Working Papers, Center for Retirement Research at Boston College with number 2004-18.

as in new window
Length: 57 pages
Date of creation: May 2004
Date of revision:
Handle: RePEc:crr:crrwps:2004-18

Contact details of provider:
Postal: Hovey House, 140 Commonwealth Avenue, Chestnut Hill, MA 02467
Phone: (617) 552-1762
Fax: (617) 552-0191
Email:
Web page: http://crr.bc.edu/
More information through EDIRC

Related research

Keywords: 401(k); saving; employer matching;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. John Y. Campbell & Joao F. Cocco, 2003. "Household Risk Management And Optimal Mortgage Choice," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1449-1494, November.
  2. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  3. O'Donoghue, Ted & Rabin, Matthew, 1997. "Doing It Now or Later," Department of Economics, Working Paper Series qt7t44m5b0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. Soren Blomquist & Whitney Newey, 1999. "Nonparametric Estimation with Nonlinear Budget Sets," Working papers 99-03, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Alan L. Gustman & Olivia S. Mitchell & Andrew A. Samwick & Thomas L. Steinmeier, 1997. "Pension and Social Security Wealth in the Health and Retirement Study," NBER Working Papers 5912, National Bureau of Economic Research, Inc.
  6. Dammon, Robert M & Spatt, Chester S & Zhang, Harold H, 2001. "Optimal Consumption and Investment with Capital Gains Taxes," Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 583-616.
  7. Mitchell, Olivia S. & Utkus, Stephen P. & Yang, Tongxuan (Stella), 2007. "Turning Workers into Savers? Incentives, Liquidity, and Choice in 401(k) Plan Design," National Tax Journal, National Tax Association, vol. 60(3), pages 469-89, September.
  8. Douglas W. Elmendorf, 1996. "The effect of interest-rate changes on household saving and consumption: a survey," Finance and Economics Discussion Series 96-27, Board of Governors of the Federal Reserve System (U.S.).
  9. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
  10. Cunningham, Christopher R. & Engelhardt, Gary V., 2002. "Federal Tax Policy, Employer Matching, and 401(k) Saving: Evidence from HRS W-2 Records," National Tax Journal, National Tax Association, vol. 55(3), pages 617-45, September.
  11. Robert M. Dammon & Chester S. Spatt & Harold H. Zhang, 2004. "Optimal Asset Location and Allocation with Taxable and Tax-Deferred Investing," Journal of Finance, American Finance Association, vol. 59(3), pages 999-1037, 06.
  12. Hausman, Jerry A, 1985. "The Econometrics of Nonlinear Budget Sets," Econometrica, Econometric Society, vol. 53(6), pages 1255-82, November.
  13. Gary V. Engelhardt & Anil Kumar, 2006. "Employer Matching and 401(k) Saving: Evidence from the Health and Retirement Study," NBER Working Papers 12447, National Bureau of Economic Research, Inc.
  14. Bassett, William F. & Fleming, Michael J. & Rodrigues, Anthony P., 1998. "How Workers Use 401(k) Plans: The Participation, Contribution, and Withdrawal Decisions," National Tax Journal, National Tax Association, vol. 51(n. 2), pages 263-89, June.
  15. Richard H. Thaler & Shlomo Benartzi, 2004. "Save More Tomorrow (TM): Using Behavioral Economics to Increase Employee Saving," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages S164-S187, February.
  16. Olivia S. Mitchell & Stephen P. Utkus, 2002. "The Role of Company Stock in Defined Contribution Plans," NBER Working Papers 9250, National Bureau of Economic Research, Inc.
  17. McDonald, John F & Moffitt, Robert A, 1980. "The Uses of Tobit Analysis," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 318-21, May.
  18. Martha Starr-McCluer & Annika Sunden, 1999. "Workers' knowledge of their pension coverage: a reevaluation," Finance and Economics Discussion Series 1999-05, Board of Governors of the Federal Reserve System (U.S.).
  19. Richard Blundell & Martin Browning & Costas Meghir, 1993. "Consumer demand and the life-cycle allocation of household expenditures," IFS Working Papers W93/11, Institute for Fiscal Studies.
  20. Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-43, May.
  21. Moffitt, Robert, 1990. "The Econometrics of Kinked Budget Constraints," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 119-39, Spring.
  22. Newey, Whitney K., 1987. "Specification tests for distributional assumptions in the Tobit model," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 125-145.
  23. Bernheim, B. Douglas & Garrett, Daniel M., 2003. "The effects of financial education in the workplace: evidence from a survey of households," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1487-1519, August.
  24. Brigitte C. Madrian & Dennis F. Shea, 2000. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," NBER Working Papers 7682, National Bureau of Economic Research, Inc.
  25. James M. Poterba, 2003. "Employer Stock and 401(k) Plans," American Economic Review, American Economic Association, vol. 93(2), pages 398-404, May.
  26. Ziliak, J. & Kniesner, T.J., 1995. "Estimating Life-Cycle Labor Supply tax Effects," Papers 9589, Tilburg - Center for Economic Research.
  27. Leora Friedberg & Anthony Webb, 2003. "Retirement and the Evolution of Pension Structure," NBER Working Papers 9999, National Bureau of Economic Research, Inc.
  28. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2004. "For Better or for Worse: Default Effects and 401(k) Savings Behavior," NBER Chapters, in: Perspectives on the Economics of Aging, pages 81-126 National Bureau of Economic Research, Inc.
  29. repec:att:wimass:9722 is not listed on IDEAS
  30. James M. Poterba & Steven F. Venti & David A. Wise, 1996. "How Retirement Saving Programs Increase Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 91-112, Fall.
  31. Muellbauer, John, 1976. "Community Preferences and the Representative Consumer," Econometrica, Econometric Society, vol. 44(5), pages 979-99, September.
  32. James J. Choi & David Laibson & Brigitte C. Madrian, 2004. "Plan Design and 401(k) Savings Outcomes," NBER Working Papers 10486, National Bureau of Economic Research, Inc.
  33. Deaton, A., 1989. "Saving And Liquidity Constraints," Papers 153, Princeton, Woodrow Wilson School - Public and International Affairs.
  34. Joulfaian, David & Richardson, David, 2001. "Who Takes Advantage of Tax-Deferred Savings Programs? Evidence from Federal Income Tax Data," National Tax Journal, National Tax Association, vol. 54(n. 3), pages 669-88, September.
  35. Richard W. Blundell & James L. Powell, 2004. "Endogeneity in Semiparametric Binary Response Models," Review of Economic Studies, Wiley Blackwell, vol. 71, pages 655-679, 07.
  36. Tullio Jappelli & Jörn-Steffen Pischke & Nicholas S. Souleles, 1998. "Testing For Liquidity Constraints In Euler Equations With Complementary Data Sources," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 251-262, May.
  37. B. Douglas Bernheim & Daniel M. Garrett & Dean M. Maki, 1997. "Education and Saving: The Long-Term Effects of High School Financial Curriculum Mandates," NBER Working Papers 6085, National Bureau of Economic Research, Inc.
  38. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  39. Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
  40. John B. Shoven, 1999. "The Location and Allocation of Assets in Pension and Conventional Savings Accounts," NBER Working Papers 7007, National Bureau of Economic Research, Inc.
  41. Leslie E. Papke, 1995. "Participation in and Contributions to 401(k) Pension Plans: Evidence from Plan Data," Journal of Human Resources, University of Wisconsin Press, vol. 30(2), pages 311-325.
  42. R. Glenn Hubbard & Jonathan S. Skinner, 1996. "Assessing the Effectiveness of Saving Incentives," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 73-90, Fall.
  43. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  44. Richard H. Thaler & Shlomo Benartzi, 2001. "Naive Diversification Strategies in Defined Contribution Saving Plans," American Economic Review, American Economic Association, vol. 91(1), pages 79-98, March.
  45. Jeffrey R. Brown & Nellie Liang & Scott Weisbenner, 2004. "401(k) matching contributions in company stock: costs and benefits for firms and workers," Finance and Economics Discussion Series 2004-23, Board of Governors of the Federal Reserve System (U.S.).
  46. Alan L. Gustman & Thomas L. Steinmeier, 1999. "What People Don't Know About Their Pensions and Social Security: An Analysis Using Linked Data from the Health and Retirement Study," NBER Working Papers 7368, National Bureau of Economic Research, Inc.
  47. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1995. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
  48. Shoven, John B. & Sialm, Clemens, 2004. "Asset location in tax-deferred and conventional savings accounts," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 23-38, January.
  49. Orazio P. Attanasio & Guglielmo Weber, 1994. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," NBER Working Papers 4795, National Bureau of Economic Research, Inc.
  50. Vella, F, 1992. "Simple Tests for Sample Selection Bias in Censored and Discrete Choice Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(4), pages 413-21, Oct.-Dec..
  51. Annette Vissing-Jorgensen, 2002. "Limited Asset Market Participation and the Elasticity of Intertemporal Substitution," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 825-853, August.
  52. Olivia S. Mitchell, 1987. "Worker Knowledge of Pension Provisions," NBER Working Papers 2414, National Bureau of Economic Research, Inc.
  53. Summers, Lawrence H, 1981. "Capital Taxation and Accumulation in a Life Cycle Growth Model," American Economic Review, American Economic Association, vol. 71(4), pages 533-44, September.
  54. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1839-1872, September.
  55. Patrick J. Bayer & B. Douglas Bernheim & John Karl Scholz, 2009. "The Effects Of Financial Education In The Workplace: Evidence From A Survey Of Employers," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 605-624, October.
  56. Duflo, Esther & Gale, William & Liebman, Jeff & Orszag, Peter & Saez, Emmanuel, 2005. "Saving Incentives for Low- and Middle-Income Families: Evidence from a Field Experiment with H&R Block," CEPR Discussion Papers 5332, C.E.P.R. Discussion Papers.
  57. Robert E. Hall, 1981. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
  58. Burtless, Gary & Hausman, Jerry A, 1978. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiments," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1103-30, December.
  59. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  60. Mitali Das & Whitney K. Newey & Francis Vella, 2003. "Nonparametric Estimation of Sample Selection Models," Review of Economic Studies, Wiley Blackwell, vol. 70(1), pages 33-58, January.
  61. Annette Vissing-Jorgensen, 2002. "Limited Asset Market Participation and the Elasticity of Intertemporal Substitution," NBER Working Papers 8896, National Bureau of Economic Research, Inc.
  62. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2002. "Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance," JCPR Working Papers 257, Northwestern University/University of Chicago Joint Center for Poverty Research.
  63. repec:fth:pennfi:69 is not listed on IDEAS
  64. James J. Choi & David Laibson & Brigitte C. Madrian, 2005. "$100 Bills on the Sidewalk: Suboptimal Saving in 401(k) Plans," Levine's Bibliography 784828000000000649, UCLA Department of Economics.
  65. Newey, Whitney K., 1987. "Efficient estimation of limited dependent variable models with endogenous explanatory variables," Journal of Econometrics, Elsevier, vol. 36(3), pages 231-250, November.
  66. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January.
  67. repec:crr:crrwps:2000-12 is not listed on IDEAS
  68. Gary V. Engelhardt & Anil Kumar, 2004. "Social Security Personal-Account Participation with Government Matching," Working Papers, Center for Retirement Research at Boston College 2004-22, Center for Retirement Research.
  69. Julie Agnew & Pierluigi Balduzzi & Annika Sundén, 2003. "Portfolio Choice and Trading in a Large 401(k) Plan," American Economic Review, American Economic Association, vol. 93(1), pages 193-215, March.
  70. Johnson, Richard W & Sambamoorthi, Usha & Crystal, Stephen, 2000. "Pension Wealth at Midlife: Comparing Self-Reports with Provider Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 46(1), pages 59-83, March.
  71. Olivia S. Mitchell & Jan Olson & Thomas Steinmeier, . "Construction of the Earnings and Benefits File (EBF) for Use with the Health and Retirement Survey," Pension Research Council Working Papers 98-19, Wharton School Pension Research Council, University of Pennsylvania.
  72. Engelhardt, Gary V., 2002. "Pre-Retirement Lump-Sum Pension Distributions and Retirement Income Security: Evidence from the Health and Retirement Study," National Tax Journal, National Tax Association, vol. 55(4), pages 665-85, December.
  73. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2003. "Optimal Defaults," American Economic Review, American Economic Association, vol. 93(2), pages 180-185, May.
  74. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  75. repec:fth:stanho:e-90-11 is not listed on IDEAS
  76. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2005. "Passive Decisions and Potent Defaults," NBER Chapters, in: Analyses in the Economics of Aging, pages 59-78 National Bureau of Economic Research, Inc.
  77. Newey, Whitney K., 1986. "Linear instrumental variable estimation of limited dependent variable models with endogenous explanatory variables," Journal of Econometrics, Elsevier, vol. 32(1), pages 127-141, June.
  78. Eugene Amromin & Jennifer Huang & Clemens Sialm, 2006. "The tradeoff between mortgage prepayments and tax-deferred retirement savings," Working Paper Series WP-06-05, Federal Reserve Bank of Chicago.
  79. Eric M. Engen & William G. Gale & John Karl Scholz, 1996. "The Illusory Effects of Saving Incentives on Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 113-138, Fall.
  80. James M. Poterba & John B. Shoven & Clemens Sialm, 2000. "Asset Location for Retirement Savers," NBER Working Papers 7991, National Bureau of Economic Research, Inc.
  81. Papke, Leslie E. & Poterba, James M., 1995. "Survey evidence on employer match rates and employee saving behavior in 401(k) plans," Economics Letters, Elsevier, vol. 49(3), pages 313-317, September.
  82. Dynan, Karen E, 1993. "How Prudent Are Consumers?," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1104-13, December.
  83. Karen E. Dynan, 1993. "How prudent are consumers?," Working Paper Series / Economic Activity Section 135, Board of Governors of the Federal Reserve System (U.S.).
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:crr:crrwps:2004-18. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Grzybowski) or (Christopher F Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.