Defined contribution plans: the role of income, age and match rates

Abstract: The growth of defined contribution plans has sparked debate concerning their effectiveness as a vehicle for retirement saving. Using data from the May 1993 Employee Benefits Supplement to the Current Population Survey, this paper examines whether DC plans have expanded overall pension coverage and whether their effects on retirement saving are the same across different age and income groups. Not surprisingly, I find that contributions to and early withdrawals from DC plans are strongly affected by income and age. The paper then discusses whether employer match rates are useful tools for stimulating participation and contributions in these plans. However, it turns out that the effectiveness of employer match rates is also highly dependent on the income of the individual subject to the match rate.

Keywords: Income; Retirement; Cafeteria benefit plans;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Research Paper

Publication Date: 1995

Number: 9517