Publication Date



Policy Paper No. 2011-008




Many workers save for retirement through 401(k) plans. This study addresses the concern that low account balances of older workers may indicate that these vehicles are not sufficient to insure adequate retirement savings. In particular, the study shows that while they are accumulating these plans, workers are not persistent in contributing, and a weak stock market exacerbates the problem.

Inertia does not seem to hold for 401(k) saving behavior. Furthermore, the investment strategy of dollar cost averaging does not seem to hold, either. Using four biennial waves of data from the Panel Study of Income Dynamics (PSID) covering a six-year time span from 1999 to 2005, the study presents descriptive and econometric evidence about the persistence behavior of individuals with 401(k) accounts. Descriptive data show that of the sample of household heads aged 21-65 in 2005 who were employed in every time period, only about one-third (35 percent) contributed to their plan in all four waves. Job changing had an impact. However, even for individuals in the sample who did not change jobs, less than half (46 percent) contributed in all four years of the survey.

An econometric model of 401(k) contribution behavior was estimated. The statistically significant, positive coefficient on the Dow Jones Industrial Average in this model indicates that workers tended to contribute to their plans when the market was up. This investment error is called herd investing, where individuals get into the market when it is high and not when it is low.

These findings have important implications for the pension system and adequacy of retirement income. Projections of future retirement income readiness that assume that workers persistently contribute over their working lives greatly exaggerate the future levels of pension assets workers will have accumulated.

Issue Date

April 2011

Subject Areas

LABOR MARKET ISSUES; Retirement and pensions




Muller, Leslie A. and John A. Turner. 2011. "The Lack of Persistence of Employee Contributions to Their 401(k) Plans May Lead to Insufficient Retirement Savings." Policy Paper No. 2011-008. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research.