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How much do respondents in the health and retirement study know about their contributions to tax-deferred contribution plans? A cross-cohort comparison*

Published online by Cambridge University Press:  14 July 2014

IRENA DUSHI  and
MARJORIE HONIG
IRENA DUSHI
Affiliation:
Social Security Administration, Office of Retirement and Disability Policy, Office of Research, Evaluation, and Statistics, 500 E Street S.W., Washington, DC 20254, USA (e-mail: [email protected])
MARJORIE HONIG
Affiliation:
Department of Economics, Hunter College and the Graduate School of CUNY, 695 Park Avenue, New York, NY 10065
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Abstract

We use information from Social Security earnings records to examine the accuracy of survey responses regarding participation in tax-deferred pension plans. As employer-provided defined benefit pensions are replaced by voluntary contribution plans, employees’ understanding of the link between their annual contributions and their post-retirement wealth is becoming increasingly important. We examine the extent to which wage-earners in the Health and Retirement Study (HRS) correctly report their inclusion in tax-deferred contribution plans and, conditional on inclusion, their annual contributions. We use three samples representing different cohorts in three different periods: the original HRS cohort interviewed in 1992 at ages 51–56, the War Babies cohort interviewed in 1998 at ages 51–56, and the Early Baby Boomer cohort interviewed in 2004 at the same ages. Our findings indicate that while respondents interviewed in 1998 and 2004 were more likely to correctly report whether they were included in defined contribution plans, they were no more accurate when reporting whether they had contributed to their plans than respondents interviewed in 1992. Contributors in the three cohorts, moreover, overstated their annual contributions and thus would be likely to realize lower than expected account balances at retirement. The magnitude of this error is not negligible. In all three cohorts, the mean reporting error (the absolute difference between respondent-reported and Social Security earnings record contributions) was approximately 1.5 times larger than the mean contribution in the W-2 earnings record.

Keywords

J32H24D83J31DC planstax-deferred contributionsemployee knowledgeW-2 records
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 14 , Issue 3 , July 2015 , pp. 203 - 239
Creative Commons
This is a work of the U.S. Government and is not subject to copyright protection in the United States.
Copyright
Copyright © Cambridge University Press 2014

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Footnotes

*

The research reported herein was supported by a grant from the U.S. Social Security Administration through the Michigan Retirement Research Center. The opinions and conclusions are solely those of the authors and do not represent the views of the Social Security Administration, any agency of the Federal Government, or the Michigan Retirement Research Center. We would like to thank Alan Gustman, Olivia Mitchell, Susan Grad, Paul Davies, and two anonymous reviewers for very helpful comments.

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