nep-cmp New Economics Papers
on Computational Economics
Issue of 2005‒08‒20
one paper chosen by
Stan Miles
York University

  1. Social Security Personal-Account Participation with Government Matching By Gary V. Engelhardt; Anil Kumar

  1. By: Gary V. Engelhardt (Syracuse University); Anil Kumar (Center for Policy Research)
    Abstract: This paper examines the potential impact of government matching contributions on personal-account participation in the President's Commission on Strengthening Social Security's Model 3 for Social Security reform. Given the government's choice of four plan-design parameters, the magnitude of the match is determined solely by the differential return personal-account assets receive above the notional return, referred to as the "personal-account premium," akin to the equity premium. The impact of matching on personal-account participation is simulated for older workers (ages 40 to 65) in the first wave of the Health and Retirement Study (HRS) using empirical estimates from a structural model of the impact of employer matching on participation in corporate 401(k) plans. For a personal-account premium of five percentage points, which implies a match rate of 12.5 percent for middle- to lower-income workers, the simulations imply that 53 percent of older workers would participate in voluntary personal accounts. The response of participation to matching is very inelastic; it is very unlikely that participation by older workers would achieve the mid-range assumption by the Commission of 67 percent. There is substantial heterogeneity in participation across subsets of older workers: participation would be the lowest for low-educated, minority, and unmarried older workers.
    Keywords: social security, reform, matching
    JEL: H55 J14 J15
    Date: 2004–10
    URL: http://d.repec.org/n?u=RePEc:crr:crrwps:2004-22&r=cmp

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