What Determines 401(K) Participation and Contributions?

Boston College CRR Working Paper No. 2000-12

23 Pages Posted: 7 Dec 2000

See all articles by Alicia H. Munnell

Alicia H. Munnell

Boston College - Center for Retirement Research

Annika E. Sundén

Stockholm University - Swedish Institute for Social Research (SOFI)

Catherine Taylor

Boston College - Center for Retirement Research

Multiple version iconThere are 2 versions of this paper

Date Written: December 2000

Abstract

This paper uses the 1998 Survey of Consumer Finances to identify the factors that determine whether an eligible employee elects to participate in a 401(k) plan and the magnitude of the employee's contribution. The conclusion is that the most important factor affecting employees' participation and contribution decisions is their planning horizon. Those with planning periods of less than two years are much less likely to provide for retirement than those who have a more long-term perspective. These results are consistent with other studies suggesting that employee education can have a major impact on retirement saving. On the plan side, the most important determinants are the availability of an employer match and the ability of employees to gain access to their funds before retirement through withdrawal or borrowing. In short, good information about the need for retirement saving and good plan design can significantly increase participation and contributions. The question is whether employers have the incentive to make this effort under the new safe harbor nondiscrimination provisions.

Keywords: 401(k), savings, pensions, retirement

JEL Classification: J32, E21

Suggested Citation

Munnell, Alicia and Sundén, Annika E. and Taylor, Catherine, What Determines 401(K) Participation and Contributions? (December 2000). Boston College CRR Working Paper No. 2000-12. Available at SSRN: https://ssrn.com/abstract=253037 or http://dx.doi.org/10.2139/ssrn.253037

Alicia Munnell

Boston College - Center for Retirement Research ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States
617-552-1762 (Phone)

Annika E. Sundén (Contact Author)

Stockholm University - Swedish Institute for Social Research (SOFI) ( email )

Kyrkgatan 43B
SE-106 91 Stockholm
Sweden

Catherine Taylor

Boston College - Center for Retirement Research

Fulton Hall 550
Chestnut Hill, MA 02467-3808
United States

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