Employer Matching and 401(K) Saving: Evidence from the Health and Retirement Study

80 Pages Posted: 21 Aug 2006 Last revised: 7 Jul 2010

See all articles by Gary V. Engelhardt

Gary V. Engelhardt

Syracuse University - Center for Policy Research; Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

Anil Kumar

Federal Reserve Bank of Dallas - Research Department

Date Written: August 2006

Abstract

Employer matching of employee 401(k) contributions can provide a powerful incentive to save for retirement and is a key component in pension-plan design in the United States. Using detailed administrative contribution, earnings, and pension-plan data from the Health and Retirement Study, this analysis formulates a life-cycle-consistent econometric specification of 401(k) saving and estimates the determinants of saving accounting for non-linearities in the household budget set induced by matching. The participation estimates indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401(k) participation by 3.75 to 6 percentage points, and the estimated elasticity of participation with respect to matching ranges from 0.02-0.07. The parametric and semi-parametric estimates for saving indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401(k) saving by $400-$700 (in 1991 dollars). The estimated elasticity of 401(k) saving to matching is also small and ranges from 0.09-0.12 overall, with just under half of this effect on the intensive margin. Overall, the analysis reveals that matching is a rather poor policy instrument with which to raise retirement saving.

Suggested Citation

Engelhardt, Gary V. and Kumar, Anil, Employer Matching and 401(K) Saving: Evidence from the Health and Retirement Study (August 2006). NBER Working Paper No. w12447, Available at SSRN: https://ssrn.com/abstract=924537

Gary V. Engelhardt (Contact Author)

Syracuse University - Center for Policy Research ( email )

426 Eggers Hall
Syracuse, NY 13244
United States
315-443-4598 (Phone)
315-443-1081 (Fax)

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
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National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Anil Kumar

Federal Reserve Bank of Dallas - Research Department ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

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