The decision to defer: factors affecting employee deferral incentives

The purpose of this study is to examine employee participation and contribution incentives among defined contribution retirement plans. Using data from the 1995 Survey of Consumer Finances, probit and tobit analysis indicates no significant relationship between employer contributions and an employee’s decision to make contributions into his or her retirement plan. However, of those employees who are contributing to their pension plans, the employer contribution percentage has a significant positive effect on employee contribution rates. Therefore, the findings support our hypothesis of a direct relationship between the average employee deferral percentage and the existence of an employer matching contribution.