Do Low-Income Workers Benefit From 401(k) Plans?

Eric Toder Karen E. Smith

IB#11-15

The brief’s key findings are:

  • Previous studies find that the tax deferral advantage offered by 401(k) plans mainly benefits high-income workers, who face higher marginal tax rates.
  • A key assumption is that employer 401(k) contributions do not affect workers’ total compensation – that is, they are fully offset by lower wages.
  • However, our results suggest that additional employer contributions raise total compensation for low-income workers by about 70 to 90 cents per dollar of contribution.