Dimensions of 401(K) Plan Design
29 Pages Posted: 30 Jun 2006
Date Written: 2005
This paper explores why plan sponsors design their 401(k) plans the way they do. Employing a unique, rich dataset of over five hundred 401(k) plans, we find that these plans are principally a form of tax-motivated compensation under the restriction of federal non-discrimination rules. In other words, to appeal to better-paid workers, employers offer more generous monetary and nonmonetary plan design features. At the same time, complex federal tax rules restrict pay discrimination in favor of the highly-paid employees.
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