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Employer matching and 401(k) saving: Evidence from the health and retirement study

  • Engelhardt, Gary V.
  • Kumar, Anil

Employer matching of employee 401(k) contributions can provide a powerful incentive to save for retirement and is a key component in pension-plan design in the United States. Using detailed administrative contribution, earnings, and pension-plan data from the Health and Retirement Study, this analysis formulates a life-cycle-consistent two-limit censored regression model of 401(k) saving and estimates the effect of matching on 401(k) saving accounting for non-linearities in the household budget set induced by matching. Parametric and semi-parametric estimates indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401(k) saving by $500-$800 (in 1991 dollars), and the estimated elasticity of contributions with respect to matching ranges from 0.06-0.17 overall, with two-thirds of this effect on the extensive margin and one-third on the intensive margin.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 91 (2007)
Issue (Month): 10 (November)
Pages: 1920-1943

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Handle: RePEc:eee:pubeco:v:91:y:2007:i:10:p:1920-1943
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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