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Defined contribution plans: the role of income, age and match rates

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  • William Bassett
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    Abstract

    The growth of defined contribution plans has sparked debate concerning their effectiveness as a vehicle for retirement saving. Using data from the May 1993 Employee Benefits Supplement to the Current Population Survey, this paper examines whether DC plans have expanded overall pension coverage and whether their effects on retirement saving are the same across different age and income groups. Not surprisingly, I find that contributions to and early withdrawals from DC plans are strongly affected by income and age. The paper then discusses whether employer match rates are useful tools for stimulating participation and contributions in these plans. However, it turns out that the effectiveness of employer match rates is also highly dependent on the income of the individual subject to the match rate.

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    File URL: http://www.newyorkfed.org/research/staff_reports/research_papers/9517.html
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    File URL: http://www.newyorkfed.org/research/staff_reports/research_papers/9517.pdf
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    Bibliographic Info

    Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9517.

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    Date of creation: 1995
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    Handle: RePEc:fip:fednrp:9517

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    Related research

    Keywords: Cafeteria benefit plans ; Income ; Retirement;

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    1. Poterba, James M. & Venti, Steven F. & Wise, David A., 1995. "Do 401(k) contributions crowd out other personal saving?," Journal of Public Economics, Elsevier, vol. 58(1), pages 1-32, September.
    2. Bloom, David E & Freeman, Richard B, 1992. "The Fall in Private Pension Coverage in the United States," American Economic Review, American Economic Association, vol. 82(2), pages 539-45, May.
    3. Steven F. Venti & David A. Wise, 1996. "The Wealth of Cohorts: Retirement Saving and the Changing Assets of Older Americans," NBER Working Papers 5609, National Bureau of Economic Research, Inc.
    4. Andrea L. Kusko & James M. Poterba & David W. Wilcox, 1994. "Employee Decisions with Respect to 401(k) Plans: Evidence From Individual-Level Data," NBER Working Papers 4635, National Bureau of Economic Research, Inc.
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