1. Matthew S. Rutledge Research Economist Center for Retirement Research at Boston College 17th Annual Joint Meeting of the Retirement Research Consortium August 6-7, 2015 Washington, DC Do Catch-Up Contributions Increase 401(k) Saving?

2. Saving is heavily subsidized in U.S. 1 Traditional 401(k) and IRA contributions: Pre-tax. o But subject to payroll tax (short run). o Taxed at withdrawal (long run).  Hence, “401(k) deferrals.” o Tax expenditure on 401(k)s of $62.3 billion in 2015. Unclear if 401(k)s increase retirement saving. o Poterba, Venti, Wise (1995): Higher net saving. o Engen, Gale, Scholz (1994): Just reallocation. o Chetty et al. (2014): Most people (Danes) are “passive.”  Even active savers mostly just reallocate.

3. How can we evaluate 401(k) saving? 2 National roll-out in 1980, so not a great natural experiment. o Some variation at industry or geographic level, but participants may differ in other ways. o Some variation in tax incentive by tax bracket, but only for marginal dollar of saving, and big dataset required. Source of variation: Catch-up contributions. o Starting in 2002, age 50+ have higher 401(k) limit.  2015: $18,000 for age < 50, $24,000 for age 50+. o Previously-constrained have new tax incentive for saving.  Important: Not everyone can afford it.

4. This paper 3 Joint with April Yanyuan Wu, Francis Vitagliano. How sensitive are high savers to 401(k) tax incentives? Did 401(k) contributions increase due to the catch-up contribution provision? o Triple-differences framework around catch-up adoption. o Uses Survey of Income and Program Participation (SIPP) data linked to tax records.

5. 401(k) limits rose above and below age 50. 4 YearNominal limitCatch-up limit Real (2005$) limitReal YoY increase Age < 50Age ≥ 50Age < 50Age ≥ 50 1999$10,000$0$11,723 -2.2% % 200010,500011,909 1.6 200110,500011,579 -2.8 200211,0001,00011,94213,0273.112.5 200312,0002,00012,73714,8606.714.1 200413,0003,00013,44016,5425.511.3 200514,0004,00014,00018,0004.28.8 401(k) Deferral Limits by Age Source: Authors’ calculations from the Internal Revenue Service.

6. Our contribution 5 First causal analysis of catch-up contributions on 401(k) saving. o Existing studies: Mostly descriptive. Uses admin data on 401(k) saving linked to household survey. o More accurate than household survey alone. o More info on demographics, economic circumstances than in admin data alone. Uses natural experiment to examine responsiveness of savings to tax incentives.

7. SIPP-SSA linked data 6 SIPP 1990-2004 panels. o Demographics, education, kids, net worth, occupation, spouse’s work status, homeownership, region, pensions. Social Security Detailed Earnings Record, 1978-2006. o Total earnings, deferred earnings. o Accessed via the SIPP Synthetic Beta. Sample: Workers ages 46-53 sometime during 1999-2006. o Exclude if earning less than 4 quarters of OASI coverage or unable to work due to health condition.

8. Triple-differences model 7

9. Identification strategy 8 Short window around 2002. Short window around age 50. Max contributors very dissimilar from non-max contributors. But max contributors pre-50 and post-50 are conditionally identical except for catch-up contributions.

10. About 9 percent of sample ever contributes near the tax-deferred limit. 9 Share of years at ages 46-53 in 1990-2005NumberPercent Never205,92091.1% Near max 1-5 years10,6144.7 Near max 6-7 years4,7892.1 Near max all 8 years4,6212.0 Frequency Contributing Near the Maximum 401(k) Contribution Source: Authors’ calculations from the Survey of Income and Program Participation Completed Data Files, 1990-2005.

11. Max contributors: Greater earnings, net worth, education 10 CharacteristicFull sampleMax contributors Earnings$57,181$162,531 Net worth$199,571$438,849 Male52.6%70.2% Married72.982.0 Ever had children80.674.1 Children ages 0-1740.232.3 Children ages 18-2424.520.6 Black9.23.2 College degree or more32.872.1 Homeowner80.591.5 Blue collar30.534.8 Number of observations156,42312,406 Summary Statistics for Full Sample and Participants Ever Near Maximum Source: Authors’ calculations from the Survey of Income and Program Participation Completed Data Files, 1999-2005.

12. 11 Post-2002, deferrals among max contributors grow faster after age 50. Average Deferred Earnings by Age Among Workers Who Are Ever Near the Maximum Source: Authors’ calculations from the Survey of Income and Program Participation Completed Data Files, 1999-2005.

13. 12 Catch-up-eligible max contributors deferred $543 more than younger max contributors. Triple-Differences Regression Results Dependent variableDeferred amount Mean of the dependent variable2705.9 Year ≥ 2002248.5*** Age 50+95.9* Ever previously at 401(k) limit5604.6*** (Age 50+) × (Year ≥ 2002)-11.4 (Age 50+) × (At limit)-460.5* (At limit) × (Year ≥ 2002)917.1*** (Age 50+) × (Year ≥ 2002) × (At limit)543.3* Number of observations86,830 Note: *** p<0.01, * p<0.10. Source: Authors’ estimates from the Survey of Income and Program Participation Completed Data Files, 1999-2005.

14. 13 Predicted Increase in 401(k) Contributions from 1999-2001 to 2002-2005, 2005 $ a For simplicity, the figure does not depict the impact of the (Year)(Age) interaction. This interaction reduces the predicted total increase in contributions by $11 for each of the two groups that include individuals age 50 and over. Source: Authors’ estimates from the Survey of Income and Program Participation Completed Data Files (1999-2005). Catch-up-eligible max contributors deferred $543 more than younger max contributors.

15. Calculating the elasticity 14 $543 is 4.6 percent of average real 401(k) limit for age-50- plus. On average, real 401(k) limit is 33 percent higher post-2002 for 50-plus, and 11 percent higher post-2002 for age < 50.  22-percentage-point relative increase for 50-plus Elasticity of 401(k) deferrals with respect to change in the maximum deferral is 4.6/22 = 0.21. Alternative specifications: o Individual ages: $898 extra, elasticity = 0.30 o Fixed effects: $1,020 extra, elasticity = 0.40

16. Summary 15 Higher catch-up limit provides a source of variation to test sensitivity of 401(k) deferrals to tax incentives. Max contributors age 50-plus defer an additional $540-$1,020 more than max contributors slightly younger than 50. The implied elasticity of 401(k) saving with respect to tax- deferred limit is 0.21-0.40.

17. Conclusion 16 High-contributing 401(k) participants are sensitive to tax incentives to save. The study does not address whether: o Overall retirement saving is higher, or if the extra deferrals are simply reallocated from post-tax saving vehicles. o Participants contributing substantially less are as sensitive to tax incentives to save.