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Employer Matching and 401(k) Saving: Evidence from the Health and Retirement Study

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by Gary V. Engelhardt and Anil Kumar

WP#2004-18  

Abstract 

Employer matching of employee 401(k) contributions can provide a powerful incentive to save for retirement. We examine the effect of matching on 401(k) saving accounting for non-linearities in the intertemporal budget set. We use detailed administrative contribution, earnings, and pension plan data from the Health and Retirement Study and estimate that the elasticity of contributions with respect to matching is 0.15-0.27 overall, with sixty percent of this effect on the participation margin and the remaining forty percent on the intensive margin. The estimated after-tax cross-price elasticity of 401(k) contributions with respect to IRA saving is -0.60, which suggests 401(k)s and IRAs are substitutes in tax-deferred saving. We find no evidence of endogenous worker sorting based on the discount rate to plans that offer matching.

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Gary V. Engelhardt is an associate professor of economics at Syracuse University and a senior research associate at the Center for Policy Research. Anil Kumar is a research associate at the Center for Policy Research. The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) to the Center for Retirement Research at Boston College (CRR). The opinions and conclusions are solely those of the authors and should not be construed as representing the opinions or policy of the SSA or any agency of the Federal Government or of the CRR. The authors would like to thank Dan Black, Chris Cunnin gham, Bill Gale, Erik Hurst, Brigitte Madrian, John Moran, and seminar participants at Syracuse University, University of Chicago, and University of Virginia for helpful discussions and comments.
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