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Employer matching and 401 (k) participation: evidence from the health and retirement study

Gary V. Engelhardt and Anil Kumar

No 601, Working Papers from Federal Reserve Bank of Dallas

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 discrete choice regression model of 401(k) participation and estimates the determinants of participation accounting for non-linearities in the household budget set induced by matching. The 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 estimated elasticity of intertemporal substitution is 0.74-0.83. Overall, the analysis reveals that matching is a rather poor instrument with which to raise retirement saving.

Keywords: Saving and investment; Taxation; Pensions (search for similar items in EconPapers)
Pages: 74 pages
Date: 2006
New Economics Papers: this item is included in nep-dcm
Note: Published as: Engelhardt, Gary V. and Anil Kumar (2007), "Employer Matching and 401(k) Participation: Evidence from the Health and Retirement Study," Journal of Public Economics 91 (10): 1920-1943.
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