Employer matching and 401(k) saving: Evidence from the health and retirement study

Gary V. Engelhardt, Anil Kumar

Research output: Contribution to journalArticlepeer-review

42 Scopus citations

Abstract

Employer matching of employee 401(k) contributions is often touted as 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 econometric specification of 401(k) saving and estimates the determinants of saving accounting for non-linearities in the household budget set induced by matching. The participation estimates indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401(k) participation by 5 percentage points. The parametric and semi-parametric estimates for saving indicate that an increase in the match rate by 25 cents per dollar of employee contribution raises 401(k) saving by $365 (in 1991 dollars). Overall, the analysis reveals that the 401(k) saving response to matching is quite inelastic, and, hence, matching is a rather poor policy instrument with which to raise retirement saving.

Original languageEnglish (US)
Pages (from-to)1920-1943
Number of pages24
JournalJournal of Public Economics
Volume91
Issue number10
DOIs
StatePublished - Nov 2007

Keywords

  • Employer matching
  • Private pensions
  • Saving
  • Taxation

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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