May 2013

The relationship between job characteristics and retirement savings in defined contribution plans


Second, an individual’s financial circumstances can change. An economic downturn could lead to job loss or reduced earnings, which can alter savings and consumption patterns.12 An economic downturn may correlate with a decline in family income or assets (such as housing wealth), which might induce DC plan participants to reduce contributions. Alternatively, greater economic distress may prompt some to consume less and save more.13 Recent research, for example, provides evidence that older households incurred substantial losses in assets over the 2007–2009 recession and, in response, consumed less, saved more, and worked longer.14 Furthermore, economic conditions can be associated with family status change, such as divorce,15 and changes in family structure can alter one’s financial circumstances.16

Third, a changing economic environment may encourage employers to alter provisions of their DC plan.17 There is evidence that the recent recession led some companies to reduce or suspend matching contributions.18 This is important in light of research showing that of an employer match can have an impact on DC plan participation and contributions.19

Relatively little empirical research has assessed how DC participants’ level of contributions evolved over the recent recession. Existing studies based on administrative data from investment firms indicate that inertia generally prevailed over the recession for workers already participating in DC plans.20 One study, for example, reported that about 70 percent of Vanguard DC plan participants made no changes to their elective contribution rates in 2008 while 20 percent increased contribution rates and only 7 percent decreased contribution rates.21 However, an analysis of national survey data matched to longitudinal tax records found evidence of a greater prevalence of reductions in contribution levels during the recent recession (2007–2009) relative to a prior, nonrecessionary period (2005–2007).22

In addition to economic conditions, individual characteristics are important determinants of contribution levels. A life cycle model views age as a key factor related to individual savings and financial outlook.23 Put simply, a life cycle perspective maintains that savings would follow an inverted U-shape over one’s own life. Adults who are in their peak earnings years would be expected to increase savings, while younger people, who have less income and fewer financial assets, would be expected to save less and contribute less to DC plans.

Nonetheless, contribution behavior also varies among individuals within the same age range. This is due in part to differences in individual preferences (e.g., taste for saving) and attitudinal variables, such as planning horizon. Also important are socioeconomic differences—such as earnings, family income, and wealth—as well as educational attainment, marriage, and race/ethnicity.24 Plan characteristics, such as employer matches, investment choices, and ability to borrow, also correlate with contributions.25 Moreover, a wide range of social and psychological factors can be potential correlates.26


12 Jingjing Chai, Raimond Maurer, Olivia S. Mitchell, and Ralph Rogalla, “Lifecycle impacts of the financial crisis on optimal consumption–portfolio choice, and labor supply,” in Maurer, Mitchell, and Warshawsky, eds., Reshaping retirement security, pp. 120–150.

13 Sass, Monk, and Haverstick, “Workers’ response to the market crash.”

14 Hurd and Rohwedder, “Effects of the economic crisis on the older population.”

15 Paul R. Amato and Brett Beattie, “Does the unemployment rate affect the divorce rate? An analysis of state data 1960–2005,” Social Science Research, vol.40, no. 3, 2011, pp. 705–715; and Abdur Chowdhury,“’Til recession do us part: booms, busts and divorce in the United States,” Applied Economics Letters, vol. 20, no. 3, 2013, pp. 255–261.

16 Christopher R. Tamborini, Howard M. Iams, and Gayle L. Reznik, “Women’s earningsbefore and after marital dissolution: evidence from longitudinal earnings records matched to survey data,” Journal of Family and Economic Issues , March 2012, pp. 69–82.

17 David Wray, “A stress test for the private employer defined contribution system,” in Maurer, Mitchell, and Warshawsky, eds., Reshaping retirement security, pp. 151–160.

18 Eleanor Laise and Kelly Greene, “Employers slow to resume 401(k) matches,” Wall Street Journal, August 3, 2010; and Towers Watson, “Benefits in crisis: weathering economic climate change,” Pulse Survey Report, April 2009,

19 Keenan Dworak-Fisher, “Matching matters in 401(k) plan participation.” Industrial Relations, Occtober 2011, pp. 713737; Gary V. Engelhardt and Anil Kumar, “Employer matching and 401(k) saving: Evidence from the health and retirement study,”  Journal of Public Economics, November 2007, pp. 1920–1943; M. Kabir Hassan and Shari Lawrence, “The decision to defer: factors affecting employees deferral incentives,” Financial Services Review, vol. 10, 2001, pp. 45–54; Alicia H. Munnell, Annika Sundén, and Catherine Taylor, “What determines 401(k) participation and contributions?” Social Security Bulletin, vol. 64, no. 3, 2002, pp. 64–75; and Leslie E. Papke, “Participation in and contributions to 401(k) pension plans: evidence from plan data.”  Journal of Human Resources, Spring 1995, pp. 311–325.

20 Cynthia A. Pagliaro and Stephen P. Utkus, “Dynamics of participant plan contributions, 2006–2008,” Vanguard, Vanguard Center for Retirement Research Center, August 2009,; Ning Tang, Olivia S. Mitchell, and Stephen P. Utkus, “Trading in 401(k) plans during the financial crisis,” in Maurer, Mitchell, and Warshawsky, eds., Reshaping retirement security, pp. 101–119; Jack VanDerhei, “The impact of the recent financial crisis on 401(k) account balances,”  Employee Benefit Research Institute Issue Brief, February 2009; and Stephen P. Utkus and Jean A. Young, “Resilience in volatile markets: 401(k) participant behavior September 2007–December 2009,” Vanguard, Vanguard Center for Retirement Research, March 2010.

21 Pagliaro and Utkus, “Dynamics of participant plan contributions, 2006–2008.”

22 Irena Dushi, Howard M. Iams, and Christopher R. Tamborini, “Contribution dynamics in defined contribution pension plans during the Great Recession of 2007–2009,” Social Security Bulletin vol. 73, no. 2, May 2013, pp. 85–102.

23 Albert Ando and Franco Modigliani, “The ‘life cycle’ hypothesis of saving: aggregate implications and tests,” American Economic Review, March 1963, pp. 55–84.

24 Melissa A. Z. Knoll, Christopher R. Tamborini, and Kevin Whitman, “I do…want to save: marriage and retirement savings in young households,” Journal of Marriage and Family, February 2012, pp. 86–100; and Munnell, Sundén, and Taylor, “What determines 401(k) participation and contributions?”

25 Papke, “Choice and other determinants of employee contributions to defined contribution plans.”

26 Jeffrey Bailey, John Nofsinger, and Michele O’Neill, “A review of major influences on employee retirement investment decisions,” Journal of Financial Services Research, April 2003, pp. 149–165.

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About the Author

Christopher R. Tamborini

Christopher R. Tamborini is a senior research analyst in the Office of Retirement Policy, Social Security Administration.

Patrick Purcell

Patrick Purcell is an economist in the Office of Research, Evaluation, & Statistics, Social Security Administration.

Howard M. Iams

Howard M. Iams is a senior research advisor in the Office of Research, Evaluation, & Statistics, Social Security Administration.