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Matching Matters in 401(k) Plan Participation



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    • The author’s affiliation is Office of Compensation and Working Conditions, U.S. Bureau of Labor Statistics, 2 Massachusetts Ave. NE, Washington, DC 20212. E-mail: I would like to thank John Bishow, Brandy Dickerson, Mike Lettau, and Erin McNulty for help in understanding and assembling the data and Al Blostin, Julia Coronado, Maury Gittleman, Mark Loewenstein, Brooks Pierce, and Bill Wiatrowski, and seminar participants at the University of North Carolina—Greensboro and the 2005 AEA-ASSA meetings for helpful comments on earlier versions of this paper.


This study offers new evidence on the effects of the matching contributions made by employers to 401(k) plan accounts on plan participation rates, exploiting microdata from the National Compensation Survey, a large, nationally representative, establishment dataset. It addresses the potential endogeneity of the matching contributions by employing coworker and labor market characteristics as instruments. The results indicate that employer matches have substantial effects. They also indicate that higher match rates tend to be correlated with workers having lower propensities to save; correcting for this endogeneity produces estimates that are bigger than those seen through direct cross-sectional comparisons.