Earnings volatility and 401(k) contributions

Teresa Ghilarducci, Joelle Saad-Lessler and Gayle Reznik
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Gayle Reznik: Schwartz Center for Economic Policy Analysis (SCEPA), https://www.economicpolicyresearch.org

No 2017-01, SCEPA publication series. from Schwartz Center for Economic Policy Analysis (SCEPA), The New School

Abstract: Using longitudinal Survey of Income and Program Participation data linked to Social Security Administration administrative records from 2009 and 2012, we find negative economic shocks cause 401(k) contribution behavior to react in ways consistent with reactions to fear and past trauma. If employees participating in 401(k) plans did not experience real earnings declines or unemployment spells between 2009 and 2012, then their contribution rates would have been 5% higher and each person would have contributed US $193 more toward their defined contribution plan accounts. We conclude that previous studies may have swung too far in emphasizing inertia as a primary behavior trait explaining workers' 401(k) plan engagement. Reactive behavior to protect living standards by reducing retirement savings is also important.

Keywords: private pensions; non-wage compensation; 401(k) plans; retirement savings (search for similar items in EconPapers)
JEL-codes: D14 J26 J32 (search for similar items in EconPapers)
Date: 2017-05
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Persistent link: https://EconPapers.repec.org/RePEc:epa:cepapb:2017-01

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