Wharton Pension Research Council Working Papers

Document Type

Working Paper

Date of this Version



We develop a comprehensive model of 401(k) pension design that reflects the complex tax, savings, liquidity and investment incentives of such plans. Using a new dataset on some 500 plans covering over more than 740,000 workers, we show that employer matching contributions have only a modest impact on eliciting additional retirement saving. In the typical 401(k) plan, only 10 percent of non-highly-compensated workers are induced to save more by match incentives; and 30 percent fail to join their plan at all, despite the fact that the company-proffered match would grant them a real return premium of 1-5% above market rates if they contributed. Such indifference to retirement saving incentives cannot be attributed to liquidity or investment constraints. These results underscore the need for alternative approaches beyond matching contributions, if retirement saving is to become broader-based.

Working Paper Number


Copyright/Permission Statement

Copyright 2005 © Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.


The authors thank John Ameriks, Sarah Holden and participants at the NBER Personnel Economics Summer Institute for helpful comments. They are also grateful to Vanguard for the provision of recordkeeping data under restricted access conditions; and to the Pension Research Council at the Wharton School and the Bradley Foundation for research support. This research is part of the NBER programs on Aging and Labor Economics. Opinions expressed herein are those of the authors alone, and not those of The Wharton School, Vanguard, or any other institution which whom the authors may be affiliated.

Included in

Economics Commons



Date Posted: 30 August 2019