Additional employer contributions to DC plans led to reduced wages much less for low-income than for high-income workers, the researchers found. This means that employer contributions increase the total pretax compensation of low-income relative to high- income workers, partially offsetting the larger tax benefits that these contributions provide to high-income workers, the authors concluded.
The findings imply that both low- and high-income workers benefit from employer contributions. Low-income workers benefit because their total compensation rises; high-income workers benefit because the increased access to tax-advantaged saving more than offsets their loss of money wages, even though their total compensation is about the same. This suggests that conventional approaches may overstate the share of benefits from tax-preferred retirement saving plans with employer participation that go to high-income employees by assuming that contributions reduce wages equally for all employees.
The paper is available on the Center for Retirement Research: http://crr.bc.edu/images/stories/Working_Papers/wp_2011-14_508.pdf
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