401(k) Participant Behavior in a Volatile Economy

Barbara A. Butrica Karen E. Smith

WP#2012-24

Abstract

The booms and busts of the late 1990s and 2000s have taken 401(k) plan participants on a rollercoaster ride.  Using data from administrative tax records and household surveys, this paper examines how participants responded to these periods of economic expansions and contractions by documenting changes in 401(k) participation, contributions, and investment allocation from 1990 through 2010.  Controlling for earnings, job changes, and other household factors, we show that 401(k) participation and contributions decline during recessions.  The Great Recession could lower the 401(k) assets of the typical 30-year-old by as much as 9 percent at age 62.