Academic journal article Monthly Labor Review

The Relationship between Job Characteristics and Retirement Savings in Defined Contribution Plans during the 2007-2009 Recession

Academic journal article Monthly Labor Review

The Relationship between Job Characteristics and Retirement Savings in Defined Contribution Plans during the 2007-2009 Recession

Article excerpt

Several job characteristics, most notably a decline in real earnings, were linked to declines in participants' contributions to defined contribution retirement plans during the recession of 2007-2009; employer size, occupation, and industry-specific employment losses, among other characteristics, were also associated with changes in retirement plan contributions

The landscape of U.S. employer-sponsored pensions has undergone substantial changes over recent decades. These changes have been marked by the shift from traditional defined benefit (DB) plans to defined contribution (DC) plans. (1) A central feature of most DC plans is that employees must take a more active role in their own retirement preparation: employees decide whether to participate, how much to contribute, how contributions will be invested, and whether to change these contributions and investments over time. Such decisions, in turn, can have considerable effects on an individual's retirement resources.

In this article, we explore how the job characteristics of individuals who participate in DC plans are associated with longitudinal changes in their contribution levels, namely the probability of experiencing a substantial reduction in contribution levels during a time of severe recession (2007-2009). This focus, although narrowly defined, is interesting for several reasons. First, despite a variety of studies assessing the relationship between contribution behavior and individual and plan characteristics, (2) there is surprisingly little information on how job characteristics relate to employee contributions. Most studies, moreover, do not focus on the same DC plan participant over multiple years. Existing studies also do not provide a basis for understanding how job characteristics might help account for differences between DC participants who reduce their contributions over time, including during the recent recession, and those who do not.

The focus of this article also provides insights into how retirement savings behavior during the Great Recession related to an individual's job characteristics. (3) We know that aggregate retirement wealth fell sharply between 2007 and 2009. (4) Much of this loss stemmed from a decline in stock prices, but unemployment and falling wages, among other factors, also may have led to reduced contributions to retirement accounts. (5) No research has systematically examined how job characteristics potentially relate to this dynamic. For example, economic conditions may affect DC plan participants of particular industries or employer sizes differently. Perceptions of job security may vary by industry, and employer matches may differ between large and small employers.

Understanding contribution behavior is also important because contributions can affect an individual's retirement security. In general, consistently contributing to a retirement account over one's working life will increase retirement income security. However, a reduction in contributions, especially if it is long term, could have adverse implications for financial well-being during retirement.

We draw data from a unique, restricted-use file that matches a nationally representative sample of workers from the 2008 Survey of Income and Program Participation (SIPP) to their W-2 tax records received by the Social Security Administration (SSA). The SIPP data contain information on job characteristics around the beginning of the recession, and the administrative data provide longitudinal information on respondents' actual DC plan contributions and earnings over the 2007-2009 period. Together, these data provide a unique opportunity to study participant-level changes in contribution levels over the financial crisis by job characteristics, controlling for observable differences across individuals.

In our analysis, we follow private-sector workers who participated in a DC plan in 2007 and had the same employer throughout the recession. …

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