Defined Contribution Pension Plans: Determinants of Participation and Contributions Rates

35 Pages Posted: 2 Sep 2003

See all articles by Gur Huberman

Gur Huberman

Columbia Business School - Finance and Economics

Sheena S. Iyengar

Columbia Business School - Management Division

Wei Jiang

Columbia Business School - Finance and Economics

Date Written: June 2003

Abstract

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

Huberman, Gur and Sethi-Iyengar, Sheena S. and Jiang, Wei, Defined Contribution Pension Plans: Determinants of Participation and Contributions Rates (June 2003). Available at SSRN: https://ssrn.com/abstract=421020 or http://dx.doi.org/10.2139/ssrn.421020

Gur Huberman

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
(212) 854-5553 (Phone)

Sheena S. Sethi-Iyengar

Columbia Business School - Management Division ( email )

3022 Broadway
New York, NY 10027
United States

Wei Jiang (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
(212) 854-5553 (Phone)

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