Defined Contribution Pension Plans: Determinants of Participation and Contributions Rates
35 Pages Posted: 2 Sep 2003
Date Written: June 2003
Records of 793, 794 employees eligible to participate in 647 defined contribution pension plans are studied. About 71% of them choose to participate in the plans, and of the participants, 12% choose to contribute the maximum allowed, $10,500. The main findings are (other things equal) (i) participation rates, contributions and (most remarkably) savings rates increase with compensation; on average, a $10,000 increase in compensation is associated with a 3.7% higher participation probability and $900 higher contribution; (ii) women's participation probability is 6.5% higher than men's and they contribute almost $500 more than men; (iii) participation probabilities are similar for employees covered and not covered by DB plans, but those covered by DB plans contribute more to the DC plans; (iv) the availability of a match by the employer increases employees' participation and contributions; the effect is strongest for low-income employees; (v) participation rates, especially among low-income employees, are higher when company stock is an investable fund.
Keywords: Retirement Saving, Defined Contribution Plans
JEL Classification: D14, D91, G23
Suggested Citation: Suggested Citation