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401(k) participant behavior in a volatile economy*

Published online by Cambridge University Press:  22 August 2014

BARBARA A. BUTRICA  and
KAREN E. SMITH
BARBARA A. BUTRICA
Affiliation:
Urban Institute, 2100 M Street NW, Washington, DC 20037, USA (e-mail: bbutrica@urban.org) (e-mail: ksmith@urban.org)
KAREN E. SMITH
Affiliation:
Urban Institute, 2100 M Street NW, Washington, DC 20037, USA (e-mail: bbutrica@urban.org) (e-mail: ksmith@urban.org)
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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 contribution rates from 1990 to 2009. Controlling for earnings, job changes, and other household factors, we find that workers reduce their 401(k) participation and contributions during recessions – suggesting that they may be responding to changes in their expectations about the economy and stock market. We estimate that changes in participant behavior during the Great Recession, in particular, could lower 401(k) assets of the typical 30-year-old by as much as 8% at age 62.

Keywords

J11J14J26Great Recessionretirement savingeconomic wellbeing401(k)spensionsretirement accounts
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 15 , Issue 1 , January 2016 , pp. 1 - 29
Copyright
Copyright © Cambridge University Press 2014 

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Footnotes

*

This work was supported by the Center for Retirement Research at Boston College pursuant to a grant from the U.S. Social Security Administration funded as part of the Retirement Research Consortium. The opinions and conclusions are solely those of the authors and should not be construed as representing the opinions or policy of the Social Security Administration or any agency of the federal government; the Center for Retirement Research at Boston College; or the Urban Institute, its board, or its sponsors. We thank the editor and two anonymous referees for helpful comments and suggestions. Any errors are the responsibility of the authors.

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