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Social Security Personal-Account Participation with Government Matching

Author

Listed:
  • Gary V. Engelhardt

    (Syracuse University)

  • Anil Kumar

    (Center for Policy Research)

Abstract
This paper examines the potential impact of government matching contributions on personal-account participation in the President's Commission on Strengthening Social Security's Model 3 for Social Security reform. Given the government's choice of four plan-design parameters, the magnitude of the match is determined solely by the differential return personal-account assets receive above the notional return, referred to as the "personal-account premium," akin to the equity premium. The impact of matching on personal-account participation is simulated for older workers (ages 40 to 65) in the first wave of the Health and Retirement Study (HRS) using empirical estimates from a structural model of the impact of employer matching on participation in corporate 401(k) plans. For a personal-account premium of five percentage points, which implies a match rate of 12.5 percent for middle- to lower-income workers, the simulations imply that 53 percent of older workers would participate in voluntary personal accounts. The response of participation to matching is very inelastic; it is very unlikely that participation by older workers would achieve the mid-range assumption by the Commission of 67 percent. There is substantial heterogeneity in participation across subsets of older workers: participation would be the lowest for low-educated, minority, and unmarried older workers.

Suggested Citation

  • Gary V. Engelhardt & Anil Kumar, 2004. "Social Security Personal-Account Participation with Government Matching," Working Papers, Center for Retirement Research at Boston College 2004-22, Center for Retirement Research.
    • Handle: RePEc:crr:crrwps:2004-22
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    File URL: http://crr.bc.edu/working-papers/social-security-personal-account-participation-with-government-matching/
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    References listed on IDEAS

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    Cited by:

    1. Gary V. Engelhardt & Anil Kumar, 2007. "Employer Matching and 401(k) Saving: Evidence from the Health and Retirement Study," NBER Chapters, in: Public Policy and Retirement, Trans-Atlantic Public Economics Seminar (TAPES), pages 1920-1943, National Bureau of Economic Research, Inc.
    2. Halit Yanıkkaya & Zeynep Aktaş Koral & Sadettin Haluk Çitçi, 2023. "The Power of Financial Incentives versus the Power of Suggestion for Individual Pension: Are Financial Incentives or Automatic Enrollment Policies More Effective?," Sustainability, MDPI, vol. 15(4), pages 1-18, February.
    3. Maria Teresa Medeiros Garcia & Carlos Barros & Antonio Silvestre, 2011. "Saving behaviour: evidence from Portugal," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(2), pages 225-238.
    4. Velloso, Helvia, 2006. "Social Security in the United States: Overview and Outlook," Documentos de Proyectos 3681, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).

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    More about this item

    Keywords

    social security; reform; matching;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination

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