Do Low-Income Workers Benefit from 401(k) Plans? (Brief)

Brief

Do Low-Income Workers Benefit from 401(k) Plans? (Brief)

December 9, 2011

Economists frequently assume that employees pay for employer-provided fringe benefits, such as contributions to retirement plans, in the form of reduced wages. This paper challenges these assumptions. Because low-income employees receive little tax benefit from saving in qualified retirement plans, they may not be willing to accept a one dollar reduction in their wage in return for an additional dollar contributed to their 401(k) plan. We find that employers reduce wages of high-income workers by 90 to 99 cents for every dollar contributed to a 401(k) plan, but they reduce wages of low-income workers by only 11 to 29 cents.

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