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The Effects of 401(k) Plans on Household Wealth: Differences Across Earnings Groups

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  • Eric M. Engen
  • William G. Gale

Abstract

This paper provides a new econometric specification and new evidence on the impact of 401(k) plans on household wealth. We allow the impact of 401(k)s to vary over both time and earnings groups. Our specification--motivated by a variety of theoretical considerations and data patterns--generalizes earlier work in the literature, and we show that the modeling constraints imposed by previous authors are rejected by the data. Using data from 1987 and 1991 from the Survey of Income and Program Participation, we find that the effects of 401(k)s on household wealth vary significantly by earnings level. Our analysis implies that 401(k)s held by groups with low earnings, who hold a small portion of 401(k) balances, are more likely to represent additions to net wealth than 401(k)s held by high-earning groups, who hold the bulk of 401(k) assets. Overall, between 0 and 30 percent of 401(k) balances represent net additions to private saving in the sample period.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8032.

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Date of creation: Dec 2000
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Handle: RePEc:nbr:nberwo:8032

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  1. 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.
  2. B. Douglas Bernheim & Daniel M. Garrett, 1996. "The Determinants and Consequences of Financial Education in the Workplace: Evidence from a Survey of Households," Working Papers 96007, Stanford University, Department of Economics.
  3. Bernheim, B. Douglas, 2002. "Taxation and saving," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 18, pages 1173-1249 Elsevier.
  4. 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.
  5. Richard T. Curtin & Thomas Juster & James N. Morgan, 1989. "Survey Estimates of Wealth: An Assessment of Quality," NBER Chapters, in: The Measurement of Saving, Investment, and Wealth, pages 473-552 National Bureau of Economic Research, Inc.
  6. Eric M. Engen & William G. Gale & John Karl Scholz, 1996. "The Effects of Tax-Based Saving Incentives On Saving and Wealth," NBER Working Papers 5759, National Bureau of Economic Research, Inc.
  7. R. Glenn Hubbard & Jonathan S. Skinner, 1996. "Assessing the Effectiveness of Saving Incentives," NBER Working Papers 5686, National Bureau of Economic Research, Inc.
  8. 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.
  9. Poterba, James M, 1984. "Tax Subsidies to Owner-occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 729-52, November.
  10. Gale, W.G. & scholz, J.K., 1992. "IRAS and Household Saving," Papers 9244, Tilburg - Center for Economic Research.
  11. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-99, April.
  12. Engen, Eric & Gale, William & Uccello, Cori, 1999. "The Adequacy of Household Saving," MPRA Paper 56442, University Library of Munich, Germany.
  13. James M. Poterba & Andrew A. Samwick, 1997. "Household Portfolio Allocation Over the Life Cycle," NBER Working Papers 6185, National Bureau of Economic Research, Inc.
  14. James M. Poterba & Steven F. Venti & David A. Wise, 1993. "Do 401(k) Contributions Crowd Out Other Persoanl Saving?," NBER Working Papers 4391, National Bureau of Economic Research, Inc.
  15. Martin Feldstein, 1980. "Inflation, Portfolio Choice, and the Price of Land and Corporate Stock," NBER Working Papers 0526, National Bureau of Economic Research, Inc.
  16. James M. Poterba & Steven F. Venti & David A. Wise, 1996. "Personal Retirement Saving Programs and Asset Accumulation: Reconciling the Evidence," NBER Working Papers 5599, National Bureau of Economic Research, Inc.
  17. William G. Gale & John Sabelhaus, 1999. "Perspectives on the Household Saving Rate," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 181-224.
  18. B. Douglas Bernheim, 1996. "Rethinking Saving Incentives," Working Papers 96009, Stanford University, Department of Economics.
  19. James M. Poterba & Andrew Samwick, 1999. "Taxation and Household Portfolio Composition: U.S. Evidence from the 1980s and 1990s," NBER Working Papers 7392, National Bureau of Economic Research, Inc.
  20. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2000. "Do the Rich Save More?," NBER Working Papers 7906, National Bureau of Economic Research, Inc.
  21. 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.
  22. Lawrence H. Summers, 1980. "Inflation, the Stock Market, and Owner-Occupied Housing," NBER Working Papers 0606, National Bureau of Economic Research, Inc.
  23. Leslie E. Papke, 1996. "Are 401(k) Plans Replacing Other Employer-Provided Pensions? Evidence from Panel Data," NBER Working Papers 5736, National Bureau of Economic Research, Inc.
  24. David I. Laibson & Andrea Repetto & Jeremy Tobacman, 1998. "Self-Control and Saving for Retirement," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 91-196.
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