How Workers Use 401(K) Plans: The Participation, Contribution, and Withdrawal Decisions

48 Pages Posted: 28 Oct 2006

See all articles by Michael J. Fleming

Michael J. Fleming

Federal Reserve Bank of New York

William F. Bassett

Board of Governors of the Federal Reserve System (FRB)

Anthony P. Rodrigues

Federal Reserve Bank of New York

Date Written: March 1998

Abstract

This paper examines how workers use 401(k) plans by examining their participation, contribution, and withdrawal decisions. Sixty-five percent of eligible workers participate in 401(k) plans. Employee participation rises with income, age, job tenure, and education. While participation also rises if the employer matches contributions, 401(k) participation does not grow with the rate of matching. When pension plan assets are withdrawn in lump-sum distributions before retirement, just 28 percent of distribution recipients (representing 56 percent of distribution assets) roll over the withdrawn funds into tax-qualified savings plans. Our findings suggest that many workers, particularly those with low incomes, do not use 401(k) plans to save for retirement.

JEL Classification: J26, H2, H31

Suggested Citation

Fleming, Michael J. and Bassett, William F. and Rodrigues, Anthony P., How Workers Use 401(K) Plans: The Participation, Contribution, and Withdrawal Decisions (March 1998). FRB of New York Staff Report No. 38. Available at SSRN: https://ssrn.com/abstract=940656 or http://dx.doi.org/10.2139/ssrn.940656

Michael J. Fleming (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6372 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.newyorkfed.org/research/economists/fleming/

William F. Bassett

Board of Governors of the Federal Reserve System (FRB) ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Anthony P. Rodrigues

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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