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How workers use 401(k) plans: the participation, contribution, and withdrawal decisions

Author Info

Listed author(s):
  • William F. Bassett
  • Michael J. Fleming
  • Anthony P. Rodrigues

Abstract

This paper examines how workers use 401(k) plans by examining their participation, contribution, and withdrawal decisions. Sixty-five percent of eligible workers participate in 401(k) plans. Employee participation rises with income, age, job tenure, and education. While participation also rises if the employer matches contributions, 401(k) participation does not grow with the rate of matching. When pension plan assets are withdrawn in lump-sum distributions before retirement, just 28 percent of distribution recipients (representing 56 percent of distribution assets) roll over the withdrawn funds into tax-qualified savings plans. Our findings suggest that many workers, particularly those with low incomes, do not use 401(k) plans to save for retirement.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 38.

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Date of creation: 1998
Handle: RePEc:fip:fednsr:38
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Keywords: Retirement ; Investments ; Cafeteria benefit plans;

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  9. James M. Poterba & Steven F. Venti, 1998. "Lump-Sum Distributions from Retirement Saving Plans: Receipt and Utilization," NBER Chapters,in: Inquiries in the Economics of Aging, pages 85-108 National Bureau of Economic Research, Inc.
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  18. Parsons, Donald O., 1991. "The decline in private pension coverage in the United States," Economics Letters, Elsevier, vol. 36(4), pages 419-423, August.
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