How Much Do Respondents in the Health and Retirement Study Know About Their Tax-Deferred Contribution Plans? A Cross-Cohort Comparison

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 contribution decisions and their post-retirement wealth is becoming increasingly important. We examine the extent to which wage-earners in the Health and Retirement Study correctly report their inclusion in tax-deferred contribution plans and, conditional on inclusion, their annual contributions. We use two samples representing different cohorts in two different periods: the original HRS cohort interviewed in 1992 at ages 51-61, and a combination of the War Babies and Early Baby Boomer cohorts at the same ages interviewed twelve years later. Our findings indicate that while respondents interviewed in 2004 were more likely to report correctly whether they were included in DC plans, they were no more accurate in reporting whether they contributed to their plans than respondents interviewed in 1992. Respondents in both cohorts, moreover, overestimated their annual contributions. In both 1992 and in 2004, the mean absolute difference between respondent-reported and Social Security earnings record contributions was 1.5 times larger than the mean earnings record contribution.