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How Much Do Respondents in the Health and Retirement Study Know About Their Tax-deferred Contribution Plans? A Crosscohort Comparison

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Author Info
Irena Dushi (Social Security Administration)
Marjorie Honig (Hunter College and CUNY)
Abstract

We use information from Social Security earnings records to examine the accuracy of employee reports of annual contributions to tax-deferred pension plans. As employer defined benefit pensions are replaced by voluntary contribution plans, employee understanding of the link between annual contribution decisions and post-retirement wealth is becoming increasingly important. We compare the accuracy of employee reports of annual contributions in a sample of respondents in the original HRS cohort and in a sample of two younger cohorts, the War Babies and Early Baby Boomers. Tax-deferred plans are more common among the younger cohorts and we expected that they would be better informed about their annual contributions. We find that, among respondents for whom SSA administrative records are available, those in the younger cohorts were more likely to report accurately that they were included in a tax-deferred plan. Contrary to our expectation, identical proportions (70 percent) of respondents in both the older and the younger cohorts accurately reported whether they made a contribution during the interview year. Furthermore, we find no significant difference between the older and younger cohorts in the degree of reporting accuracy of contribution amounts, with approximately one-half of respondents in each cohort reporting contributions within plus/minus 25 percent of the true value. Both cohorts’ self-reported contributions are systematically larger than the true values. Finally, both self-reported and W-2 contributions are significantly larger among respondents in the WB/EBB cohort.

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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp201.

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Length: 39 pages
Date of creation: Dec 2008
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Handle: RePEc:mrr:papers:wp201

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  1. Mitchell, Olivia S, 1988. "Worker Knowledge of Pension Provisions," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 21-39, January. [Downloadable!] (restricted)
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  2. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2002. "Defined Contribution Pensions: Plan Rules, Participant Choices, and the Path of Least Resistance," NBER Chapters, in: Tax Policy and the Economy, Volume 16, pages 67-114 National Bureau of Economic Research, Inc. [Downloadable!]
  3. Sewin Chan & Ann Huff Stevens, 2003. "What You Don't Know Can't Help You: Pension Knowledge and Retirement Decision Making," NBER Working Papers 10185, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Brigitte C. Madrian & Dennis F. Shea, 2001. "THE POWER OF SUGGESTION: INERTIA IN 401(k) PARTICIPATION AND SAVINGS BEHAVIOR," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1149-1187, November. [Downloadable!] (restricted)
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