Earnings volatility and 401(k) contributions

Teresa Ghilarducci, Joelle Saad-Lessler, Gayle Reznik

Research output: Contribution to journalReview articlepeer-review

4 Scopus citations

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.

Original languageEnglish
Pages (from-to)554-575
Number of pages22
JournalJournal of Pension Economics and Finance
Volume17
Issue number4
DOIs
StatePublished - 1 Oct 2018

Keywords

  • 401(k) plans
  • Non-wage compensation
  • Private pensions
  • Retirement savings

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