Effect of Taxes in a Nested Logit Model of 401(K) Offer and Participation Rates

摘要

This paper asks the question: 'Are primary 401(k) Plans a perfect substitute fortranditional defined benefit plans from the workers' perspective'. This question is important for at least two reasons. First, imperfect substitution across plan types is critical for demand side arguments that pension coverage has declined because of regulatory changes inabling 401(k) plans. Second, the predictive power of behavioral models of pension coverage may be improved by testing maintained hypotheses about substitutability across plan types. This paper estimates a nested logic model of the probability that a traditional plan is chosen over a 401(k) plan, conditional on pension coverage. The results suggest that women treat traditional and 401(k) plans as perfect substitutes. This validates for women the approach that treats coverage by the two types of plans as equivalent, leading to estimation of a single pension coverage equation. It also suggests that regulatory changes which enable 401(k) plans have contributed little to the trend towards rising coverage rates for women. The results for men are less clear cut, because the data reject the hypothesis that behavior is consistent with expected utility maximization.