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Earnings volatility and 401(k) contributions

Published online by Cambridge University Press:  12 May 2017

TERESA GHILARDUCCI ,
JOELLE SAAD-LESSLER  and
GAYLE REZNIK
TERESA GHILARDUCCI
Affiliation:
Department of Economics, New School for Social Research, 6 East 16, 11th floor, New York, NY 10003, USA (e-mail: [email protected])
JOELLE SAAD-LESSLER
Affiliation:
Stevens Institute of Technology, School of Business, Castle Point on the Hudson, Hoboken, NJ 07030, USA (e-mail: [email protected])
GAYLE REZNIK
Affiliation:
Social Security Administration, Office of Retirement Policy, Social Security Administration, 500 E Street, SW Washington, DC 20254, USA (e-mail: [email protected])
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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.

Keywords

D14J26J32Private pensionsnon-wage compensation401(k) plansretirement savings
Type
Article
Information
Journal of Pension Economics & Finance , Volume 17 , Issue 4 , October 2018 , pp. 554 - 575
Copyright
Copyright © Cambridge University Press 2017 

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Footnotes

The views expressed in this paper are only those of the coauthors and do not represent the views of the Social Security Administration.

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