Report

How workers use 401(k) plans: the participation, contribution, and withdrawal decisions


Abstract: This paper examines how workers use 401(k) plans by examining their participation, contribution, and withdrawal decisions. Sixty-five percent of eligible workers participate in 401(k) plans. Employee participation rises with income, age, job tenure, and education. While participation also rises if the employer matches contributions, 401(k) participation does not grow with the rate of matching. When pension plan assets are withdrawn in lump-sum distributions before retirement, just 28 percent of distribution recipients (representing 56 percent of distribution assets) roll over the withdrawn funds into tax-qualified savings plans. Our findings suggest that many workers, particularly those with low incomes, do not use 401(k) plans to save for retirement.

Keywords: Investments; Retirement; Cafeteria benefit plans;

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Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 1998

Number: 38