Turning Workers into Savers? Incentives, Liquidity, and Choice in 401(K) Plan Design
34 Pages Posted: 24 Jan 2006 Last revised: 16 Jan 2022
Date Written: October 2005
Abstract
We develop a comprehensive model of 401(k) pension design that reflects the complex tax, savings, liquidity and investment incentives of such plans. Using a new dataset on some 500 plans covering nearly 740,000 workers, we show that employer matching contributions have only a modest impact on eliciting additional retirement saving. In the typical 401(k) plan, only 10 percent of non-highly-compensated workers are induced to save more by match incentives; and 30 percent fail to join their plan at all, despite the fact that the company-proffered match would grant them a real return premium of 1-5% above market rates if they contributed. Such indifference to retirement saving incentives cannot be attributed to liquidity or investment constraints. These results underscore the need for alternative approaches beyond matching contributions, if retirement saving is to become broader-based.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance
By James J. Choi, David Laibson, ...
-
401(K) Plan Asset Allocation, Account Balances, and Loan Activity in 2000
By Sarah Holden and Jack Vanderhei
-
401(K) Plan Asset Allocation, Account Balances, and Loan Activity in 2001
By Sarah Holden and Jack Vanderhei
-
401(K) Plan Asset Allocation, Account Balances, and Loan Activity in 1999
By Sarah Holden and Jack Vanderhei
-
401(K) Plan Asset Allocation, Account Balances, and Loan Activity in 2002
By Sarah Holden and Jack Vanderhei
-
401(K) Plan Asset Allocation, Account Balances, and Loan Activity in 2003
By Sarah Holden and Jack Vanderhei
-
401(K) Plan Asset Allocation, Account Balances, and Loan Activity in 2004
By Sarah Holden and Jack Vanderhei
-
401(K) Plan Asset Allocation, Account Balances, and Loan Activity in 2005
By Sarah Holden and Jack Vanderhei
-
401(K) Plan Asset Allocation, Account Balances, and Loan Activity in 1998
By Jack Vanderhei, Sarah Holden, ...
-
401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2009
By Jack Vanderhei, Sarah Holden, ...