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How much do respondents in the health and retirement study know about their tax-deferred contribution plans? A cross-cohort comparison

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Abstract

We use information from Social Security earnings records to examine the accuracy of survey responses regarding participation in tax-deferred pension plans. As employer-provided defined benefit pensions are replaced by voluntary contribution plans, employees’ understanding of the link between their annual contribution decisions and their post-retirement wealth is becoming increasingly important. We examine the extent to which wage-earners in the Health and Retirement Study correctly report their inclusion in tax-deferred contribution plans and, conditional on inclusion, their annual contributions. We use two samples representing different cohorts in two different periods: the original HRS cohort interviewed in 1992 at ages 51-61, and a combination of the War Babies and Early Baby Boomer cohorts at the same ages interviewed twelve years later. Our findings indicate that while respondents interviewed in 2004 were more likely to report correctly whether they were included in DC plans, they were no more accurate in reporting whether they contributed to their plans than respondents interviewed in 1992. Respondents in both cohorts, moreover, overestimated their annual contributions. In both 1992 and in 2004, the mean absolute difference between respondent-reported and Social Security earnings record contributions was 1.5 times larger than the mean earnings record contribution.

Suggested Citation

  • Marjorie Honig & Irena Dushi, 2011. "How much do respondents in the health and retirement study know about their tax-deferred contribution plans? A cross-cohort comparison," Economics Working Paper Archive at Hunter College 431, Hunter College Department of Economics.
  • Handle: RePEc:htr:hcecon:431
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    File URL: http://econ.hunter.cuny.edu/wp-content/uploads/sites/6/RePEc/papers/HunterEconWP431.pdf
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    References listed on IDEAS

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    1. Sewin Chan & Ann Huff Stevens, 2008. "What You Don't Know Can't Help You: Pension Knowledge and Retirement Decision-Making," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 253-266, May.
    2. Brigitte C. Madrian & Dennis F. Shea, 2001. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1149-1187.
    3. Mitchell, Olivia S, 1988. "Worker Knowledge of Pension Provisions," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 21-39, January.
    4. 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.
    5. Alan L. Gustman & Thomas L. Steinmeier, 1988. "An Analysis Of Pension Benefit Formulas, Pension Wealth And Incentives From Pensions," NBER Working Papers 2535, National Bureau of Economic Research, Inc.
    6. 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;National Tax Journal, vol. 55(3), pages 617-645, September.
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    Keywords

    Social Security; Tax-deferred contribution; pension plan; Voluntary contribution; Health and Retirement Study; Baby Boomers;

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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