Do Catch-Up Contributions Increase 401(k) Saving?

Qi Guan, Matthew Rutledge, April Yanyuan Wu and Francis M. Vitagliano

Issues in Brief from Center for Retirement Research

Abstract: Changes in the retirement landscape – rising life ex­pectancy, declining Social Security replacement rates, and vanishing traditional pensions – increase the need for individuals to save. The tax code encourages individuals to save in 401(k) plans by allowing tax-advantaged contributions up to specified limits. In 2001, policymakers increased these limits for all ages and established a new catch-up provision for work­ers age 50 or older, which allows them to contribute much more. This brief, which summarizes a recent study, assesses the extent to which the catch-up provision has increased 401(k) contributions. The discussion is structured as follows. The first section introduces the catch-up provision. The second section defines the data and the sample used in the analysis. The third section examines the characteristics of the group most likely to take advantage of the provision: the small percentage of workers who previously contributed near the maximum level. The fourth section analyzes how contributions changed after the adoption of the catch-up provision. The final section concludes that only those near the maximum respond to increased tax incentives to save in 401(k)s, which is consistent with previous research.

Pages: 6 pages
Date: 2015-07
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Working Paper: Do Catch-Up Contributions Increase 401 (K) Savings? (2015)
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