Critical Literature Review on the Evidence that Employer Matching Contributions to Defined Contribution Plans Increases Employee Participation in and Contributions to Such Plans

Published: 1999
Project ID: UM99-Q4


This literature review yielded several conclusions. First, the existence of an employer match in 401(k) plans increases employee participation, and the participation rate generally rises with the increase in the employer match rates. Less precise evidence is found on the link between match rates and employee contribution rates; it appears that employer matching increases the employee contribution up to some point, and higher match rate seem to reduce the contribution. Second, the probability of participation and employee contribution level rises with employees’ age and earnings. Lastly, clustering of employee contributions indicates that contributor behavior is heavily influenced by maximum matching levels and contribution limits, imposed by either the employer or by IRS. Younger and lower earning participants are more likely to contribute just enough to receive the maximum available match, while older and higher earning participants tend to be constrained by plan or legal maximum limits on 401(k) contributions. This finding may indicate how citizens will behave if a government matching program is implemented for retirement savings.



Frank Stafford