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Earnings volatility and 401(k) contributions

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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.

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  • Teresa Ghilarducci & Joelle Saad-Lessler & Gayle Reznik, 2017. "Earnings volatility and 401(k) contributions," SCEPA publication series. 2017-01, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    • Handle: RePEc:epa:cepapb:2017-01
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    More about this item

    Keywords

    private pensions; non-wage compensation; 401(k) plans; retirement savings;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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