The Effects of 401(K) Plans on Household Wealth: Differences Across Earnings Groups

56 Pages Posted: 2 Dec 2000 Last revised: 14 Sep 2001

See all articles by Eric M. Engen

Eric M. Engen

Federal Reserve Board

William G. Gale

Brookings Institution

Multiple version iconThere are 2 versions of this paper

Date Written: December 2000

Abstract

This paper provides a new econometric specification and new evidence on the impact of 401(k) plans on household wealth. We allow the impact of 401(k)s to vary over both time and earnings groups. Our specification--motivated by a variety of theoretical considerations and data patterns--generalizes earlier work in the literature, and we show that the modeling constraints imposed by previous authors are rejected by the data. Using data from 1987 and 1991 from the Survey of Income and Program Participation, we find that the effects of 401(k)s on household wealth vary significantly by earnings level. Our analysis implies that 401(k)s held by groups with low earnings, who hold a small portion of 401(k) balances, are more likely to represent additions to net wealth than 401(k)s held by high-earning groups, who hold the bulk of 401(k) assets. Overall, between 0 and 30 percent of 401(k) balances represent net additions to private saving in the sample period.

Suggested Citation

Engen, Eric M. and Gale, William G., The Effects of 401(K) Plans on Household Wealth: Differences Across Earnings Groups (December 2000). NBER Working Paper No. w8032. Available at SSRN: https://ssrn.com/abstract=252207

Eric M. Engen (Contact Author)

Federal Reserve Board ( email )

20th St. and Constitution Ave., NW
Washington, DC 20551
United States

William G. Gale

Brookings Institution ( email )

1775 Massachusetts Avenue, NW
Washington, DC 20036
United States
202-797-6148 (Phone)
202-797-6181 (Fax)

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