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

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With declining replacement rates from Social Security, increasing longevity, and a continuing shift from defined benefit (DB) to defined contribution (DC) coverage, future retirees will rely more heavily than previous generations on DC plans to sustain their living standards in retirement. This project focuses on how this increased reliance on DC plans affects the balance between the pension benefits of low- and high-earners. Using the Survey of Income and Program Participation DER match data, we will examine how the shift toward DC plans has affected compensation patterns and evaluate whether the presence of a match in 401(k) plans introduces cross-subsidies that benefit low-earners. Results from this research will inform the debate on how to strengthen the private-pension leg of the retirement system stool.