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Federal Tax Policy, Employer Matching, and 401(K) Saving: Evidence From HRS W-2 Records

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  • Cunningham, Christopher R.
  • Engelhardt, Gary V.

Abstract

We use panel data from W-2 records for households in the Health and Retirement Study (HRS) to examine the responsiveness of 401(k) saving to taxation, employer matching, and lifecycle factors. The limit on the tax deductibility of IRA contributions enacted in the Tax Reform Act of 1986 appears to have raised 401(k) saving by 6 percent. Individuals eligible for employer matching contribute substantially more, but this result is not robust once job and firm characteristics are taken into account. Alternative pension coverage greatly reduces 401(k) saving, whereas the ability to direct the investment of funds is associated with higher saving.

Suggested Citation

  • 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 617-645, September.
  • Handle: RePEc:ntj:journl:v:55:y:2002:i:3:p:617-45
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    References listed on IDEAS

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    3. 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.
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    8. 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.
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    Citations

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    Cited by:

    1. 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, pages 469-489.
    2. Amromin, Gene & Huang, Jennifer & Sialm, Clemens, 2007. "The tradeoff between mortgage prepayments and tax-deferred retirement savings," Journal of Public Economics, Elsevier, pages 2014-2040.
    3. Engelhardt, Gary V. & Madrian, Brigitte C., 2004. "Employee Stock Purchase Plans," National Tax Journal, National Tax Association, pages 385-406.
    4. Irena Dushi & Marjorie Honig, 2008. "How Much Do Respondents in the Health and Retirement Study Know About Their Tax-deferred Contribution Plans? A Crosscohort Comparison," Working Papers wp201, University of Michigan, Michigan Retirement Research Center.
    5. Courtney C. Coile & Phillip B. Levine, 2007. "Labor Market Shocks and Retirement: Do Government Programs Matter?," NBER Chapters,in: Public Policy and Retirement, Trans-Atlantic Public Economics Seminar (TAPES), pages 1902-1919 National Bureau of Economic Research, Inc.
    6. Bütler, Monika & Ramsden, Alma, 2017. "How taxes impact the choice between an annuity and the lump sum at retirement," Economics Working Paper Series 1701, University of St. Gallen, School of Economics and Political Science.
    7. Choi, James J. & Laibson, David & Madrian, Brigitte C., 2004. "Plan Design and 401(K) Savings Outcomes," National Tax Journal, National Tax Association, pages 275-298.
    8. Deb Partha & Trivedi Pravin K., 2013. "Finite Mixture for Panels with Fixed Effects," Journal of Econometric Methods, De Gruyter, pages 35-51.
    9. James M. Poterba & Steven F. Venti & David A. Wise, 2008. "New Estimates of the Future Path of 401(k) Assets," NBER Chapters,in: Tax Policy and the Economy, Volume 22, pages 43-80 National Bureau of Economic Research, Inc.
    10. Gary V. Engelhardt & Anil Kumar, 2007. "Employer Matching and 401(k) Saving: Evidence from the Health and Retirement Study," NBER Chapters,in: Public Policy and Retirement, Trans-Atlantic Public Economics Seminar (TAPES), pages 1920-1943 National Bureau of Economic Research, Inc.
    11. Heim, Bradley T. & Lurie, Ithai Z., 2012. "The Effect of Recent Tax Changes on Tax-Preferred Saving Behavior," National Tax Journal, National Tax Association, pages 283-311.
    12. Bütler, Monika & Ramsden, Alma, 2016. "Pricing annuities: The role of taxation in retirement decisions," Annual Conference 2016 (Augsburg): Demographic Change 145525, Verein für Socialpolitik / German Economic Association.
    13. Andrew Au & Olivia S. Mitchell & John W. R. Phillips, 2004. "Modeling Lifetime Earnings Paths: Hypothetical versus Actual Workers," Working Papers wp074, University of Michigan, Michigan Retirement Research Center.
    14. Jesse Bricker & Gary V. Engelhardt, 2007. "Measurement Error in Earnings Data in the Health and Retirement Study," Working Papers, Center for Retirement Research at Boston College wp2007-16, Center for Retirement Research, revised Oct 2007.
    15. Engelhardt, Gary V. & Kumar, Anil, 2009. "The elasticity of intertemporal substitution: New evidence from 401(k) participation," Economics Letters, Elsevier, pages 15-17.
    16. Irena Dushi & Marjorie Honig, 2007. "Are 401(k) Saving Rates Changing? Cohort/Period Evidence from the Health and Retirement Study," Working Papers wp160, University of Michigan, Michigan Retirement Research Center.
    17. Gary V. Engelhardt & Anil Kumar, 2011. "Pensions and Household Wealth Accumulation," Journal of Human Resources, University of Wisconsin Press, vol. 46(1), pages 203-236.
    18. 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, pages 469-489.
    19. Keenan Dworak-Fisher, 2008. "Encouraging Participation in 401(k) Plans: Reconsidering the Employer Match," Working Papers 420, U.S. Bureau of Labor Statistics.
    20. Brown, Jeffrey & Haberman, Steven & Milevsky, Moshe & Orszag, Mike, 2006. "Overview of the Issue," Journal of Pension Economics and Finance, Cambridge University Press, vol. 5(03), pages 1-1, November.
    21. Engelhardt, Gary V. & Madrian, Brigitte C., 2004. "Employee Stock Purchase Plans," National Tax Journal, National Tax Association, pages 385-406.
    22. Engelhardt, Gary V. & Kumar, Anil, 2005. "Social security personal-account participation with government matching," Journal of Pension Economics and Finance, Cambridge University Press, pages 155-179.

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