Trends in Elective Deferrals of Earnings from 1990–2001 in Social Security Administrative Data

by
Research and Statistics Note No. 2008-03 (released June 2008)

The authors are with the Division of Economic Research, Office of Research, Evaluation, and Statistics, Office of Retirement and Disability Policy, Social Security Administration.

Acknowledgments: The authors thank Bill Kearns for assistance obtaining and interpreting the data and Sharmila Choudhury, Fred Galeas, Joyce Manchester, and Susan Grad for comments.

The findings and conclusions presented in this paper are those of the authors and do not necessarily represent the views of the Social Security Administration.

Summary

This note examines trends in elective deferrals from 1990 through 2001. Elective deferrals of earnings—401(k)-type plans and similar arrangements for deferring income taxation of earnings placed in retirement accounts—first became common in the early 1980s and have grown in popularity since then. Trends in elective deferrals are potentially important in analyzing historical earnings data and in projecting future Social Security earnings. The deferrals, however, were not explicitly identified in the Social Security Administration's data on individual earnings until 1990, even though implicit and incomplete information exists since 1984. In this study, accordingly, only the deferrals since 1990 are tabulated.

The tabulations indicate that the percentage of workers with deferrals has been rising at all earnings levels. In 1990, earners in the top half of the earnings distribution were more likely to have deferrals than earners lower in the distribution, and since then this difference has grown. A strong age pattern in percentage of workers with deferrals seems to be mostly explained by this higher propensity to take deferrals among high earners. The peak earnings ages of workers also have the higher percentage of deferrals, and earners of the same sex and earnings level have very little difference by age in the percentage with deferrals. Low-earner participation in deferrals was close to zero in 1990, and the low-earners' share of deferrals has risen since then. However, the percentage of low earners with deferrals has risen less than the percentage of high earners with deferrals.

Overall, elective deferrals have been growing as a percentage of total aggregate earnings. The portion of total earnings that is received as elective deferrals has risen at least slightly over time at all earnings deciles for men and throughout the upper 70 percent of the earnings distribution for women.

Introduction

Elective deferrals, of which 401(k) contributions are the most common type, have been a growing component of employee pay (compensation) since the early 1980s. Since 1984, elective deferrals have been included in Old-Age, Survivors, and Disability Insurance (OASDI) taxable wages but not in wages reportable as taxable for the federal personal income tax. However, the Social Security Administration (SSA) has only received reports of elective deferrals as a separate earnings item since 1990. From 1984 through 1989, therefore, Social Security administrative data only include elective deferred amounts for Social Security–covered workers whose earnings are under the OASDI taxable maximum (tax max). After 1990, the OASDI taxable earnings field in the Master Earnings File (MEF) still only includes deferred amounts for Social Security–covered workers who are under the OASDI tax max. This is because the OASDI taxable earnings field only records earnings up to the OASDI tax max. However, Social Security administrative data also contain elective deferral amounts for all groups recorded as a separate field. Thus, complete deferred information can be obtained for all groups as shown in Table 1.

Table 1. Deferred compensation in Social Security administrative data
Years Deferred compensation is included in—
OASDI taxable
earnings field
IRS (federal) personal
taxable wages field
A separate field in
SSA's earnings data
1951–1983
Under OASDI taxable maximum No No No
Over OASDI taxable maximum No No No
1984–1989
Under OASDI taxable maximum Yes No No
Over OASDI taxable maximum No No No
1990–2001
Under OASDI taxable maximum Yes No Yes
Over OASDI taxable maximum No No Yes
SOURCE: Authors.
NOTE: OASDI = Old-Age, Survivors, and Disability Insurance; IRS = Internal Revenue Service; SSA = Social Security Administration.

This study, accordingly, limits itself to the explicitly reported elective deferrals available for the whole workforce at all earnings levels from 1990 through 2001. Trends in deferrals are of interest for several reasons. Wages, including elective deferrals, are only a part of overall employee compensation, which can also include employer payments for health insurance and retirement plans. Projection of the linkage between future compensation and future wages will depend on how much elective deferrals grow, how much of the growth is a shift from already-deferred compensation (from, for example, employer contributions to defined benefit plans), and how much of the growth is a shift from nondeferred wages to deferred wages.

Similarly, comparisons of wage aggregates from different sources can be more accurately made if the trends in deferrals are known. The different sources of wage aggregates include wages taxable under the federal personal income tax (which do not include elective deferrals), wage disbursements in personal income (which do not include deferrals until they are received), wages taxable under Social Security (which include deferrals, but not other employer fringe benefits), wage accruals in the National Income and Product Accounts (which include deferrals in wages rather than in supplements to wages), and wages in Census surveys.

In addition, we cannot tell from our data whether there are other changes in either employee compensation or retirement saving associated with observed changes in elective deferrals. With regard to employee compensation, at one extreme an increase in elective deferrals could simply be a shift from nondeferred wages to deferred wages, with no change in either employer-paid (fringe) benefits or total compensation to employees. In this case, the wage including deferrals would be the most accurate measure of trends in compensation. At another extreme, the increase in deferrals could be associated with a reduction in fringe benefits (employer compensation for health benefits or retirement plans) with no change in total compensation to employees. This is a case where the wage without deferrals would be a more accurate measure of trends in employee compensation. At a third extreme, an increase in deferrals could be associated with an increase in total compensation with no change in fringe benefits. In this case, the change in wages including deferrals would be the most accurate measure of trends in employee compensation. Trends in employee compensation associated with changes in deferrals are unlikely to lie at any of these extremes, and this study does not attempt to make that judgment. There are no Social Security administrative data on employer-paid (fringe) benefits, and the changes in employee-paid (elective) deferrals have been small enough and gradual enough that any attempt to correlate them with changes in nondeferred wages would have to made by separating out the many other factors that affect wages.

Finally, it should be noted that because this analysis is primarily exploratory and because so many ages and years are examined, no attempt has been made to calculate standard errors for the estimates. However, because the data are presented in single-year trends and single-year-of-age profiles, the fluctuations from year to year or age to age give some indication of the sampling variability of the data. Readers should not assign more precision to the plotted results than is warranted given the fluctuations displayed in the surrounding years or ages.

History of Elective Deferrals

Deferred compensation arrangements, which allow a postponement of both the receipt and the income taxation of some types of employee compensation, existed well before 1984, but were not used for the wages and salaries of most workers (EBRI 2005). A 1978 law introduced new arrangements in section 401(k) of the tax code, which soon led to the development of "elective deferrals" of wage earnings among the main body of the workforce. Many large firms were offering the "401(k)" plans by 1982 and 1983, and those plans, along with a number of similar tax arrangements (such as 403(b) plans for nonprofit employees and 457 plans for state and local government employees), have grown into a major vehicle for the provision of retirement savings (EBRI 2005).

Although electively deferred earnings are subtracted from earnings subject to the personal income tax, they are still subject to the OASDI and Hospital Insurance (HI) payroll tax. The distinction was made in a 1983 law, effective in 1984. Since 1984, therefore, employer reports of wage earnings on W-2 forms have included boxes for wages before excluding elective deferrals (OASDI wages, HI wages) and after excluding elective deferrals (wages to be reported on the income tax return). (Withdrawals from a deferral account, in contrast, are taxable under the personal income tax but not under the payroll tax.)

Originally the elective deferrals were also excluded from wages counted in the Social Security national average wage index. However, legislation was passed in 1989 specifying that elective deferrals be included in the wages used in the index starting in 1990.1

The Construction of the Total Earnings Variable Used for This Study

This study examines elective deferrals among all workers, including not only OASDI-taxable workers but also Medicare-qualifying government workers, self-employed workers, and workers in noncovered employment. For some purposes, it would be useful to focus on elective deferrals among a narrower group of workers such as OASDI-taxable workers only. This analysis, however, is part of a larger study of earnings among all workers. Earners with self-employment income, for example, represent upwards of 10 percent of earners and cannot be ignored in some applications of Social Security policy analyses. The earnings measure used here, accordingly, is a comprehensive measure that includes all workers with positive earnings.2

The following terminology will be used:

The sum of the 1040 wage and any elective deferrals, plus any HI-taxable self-employment earnings, comes close to giving an adequate comprehensive earnings measure:

There are at least two situations for which the 1040 wage plus elective deferrals does not give the best measure of wages in covered employment. First, there are rare cases in which the covered wage is legitimately smaller than the 1040 wage plus elective deferral.7 Second, in some cases the 1040 wage was erroneously reduced or zeroed out in the data (discussed later). In both situations the HI-taxable wage, if larger, is an improvement on the 1040 wage plus elective deferrals.

Total earnings in this study are accordingly the sum of A and B,

where A = the larger of
  • the sum of the 1040 wage and any elective deferral amount; or
  • HI-taxable wages (or, if larger, OASDI-taxable wages8); and
where B = any HI-taxable self-employment earnings.

The earnings and elective deferral amounts are derived from a 0.1 percent extract of Social Security's Master Earnings File (MEF).9 The earnings in the MEF are derived from wage earnings reported by employers on W-2s plus self-employment earnings reported by income tax filers on their 1040s. A given worker in the MEF sample can have employer reports from more than one job in a given year or can have multiple reports (such as initial reports and subsequent corrections) for a single job in one year. (Workers with both wage earnings and self-employment earnings will also have multiple reports.) For each job in a given year, any delayed reports and corrections are incorporated, and then the total earnings measure for the job is calculated. If there are multiple jobs, the total earnings and elective deferrals of the jobs are combined to obtain the annual measure used in this study.

There are several gaps in the earnings definition. First, the administrative data reporting of the 1040 wage, as mentioned, is incomplete. It is important to keep in mind that the 1040 wage is not necessary for Social Security's administrative processing of benefits. For administrative recordkeeping, the most important earnings variables to maintain accurately are the OASDI-taxable wage and self-employment earnings variables, which underlie the eventual calculation of each worker's benefits. The remaining variables are of short-term interest. The main reason that SSA receives the 1040 wage reports and the elective deferral reports is that the Office of the Chief Actuary (OCACT) is legally mandated to calculate the national average wage index from the average of all workers' (including noncovered workers) W-2 wages and elective deferrals. Once the average wage calculation has been made for a given year, it is no longer imperative for the agency to accurately maintain the 1040 wage and elective deferral variables. The taxable OASDI wage, in contrast, is continually modified as SSA receives late reports from employers or corrections from employers and employees. Although the process is always being improved, it is not surprising that the 1040 wage and elective deferral recordkeeping has not been highest on the priority list for accurate record maintenance. The most important problem, from the perspective of this study, is that the 1040 wage was sometimes zeroed out in the process of updating the OASDI wage.

For similar reasons, reporting of covered self-employment earnings is incomplete. Self-employment earnings are not included in the computation of the national average wage index, so the self-employment earnings data critical to administering the program are limited to the taxable earnings data that determine payroll tax contributions and that are credited to individual earnings histories for later benefit calculations. There are no employer W-2 reports for self-employment earnings. Instead, the Social Security administrative data rely on the taxable self-employment earnings reported by income tax filers on Schedule SE. Only self-employment earnings up to the HI-taxable maximum are reported to SSA from this form. Before 1994, therefore, some self-employment earnings are not included in the SSA data. For self-employed workers who also have covered wage earnings, the reported self-employment earnings are limited to the difference between the wage earnings and the taxable maximum, which further limits the amounts reported. If a self-employed earner also has covered wages that are at or above the taxable maximum, SSA does not receive an indication that self-employment earnings are present. Social Security administrative data also do not include information on contributions to retirement accounts associated with self-employment earnings.

It is beyond the scope of this study to investigate the possible effects on trends created by the missing 1040 wage data and self-employment earnings and deferrals. The percentage of records with problematic 1040 wage data appears to be small, particularly in the period under study (1990 through 2001). Because of the removal of the HI-taxable maximum in 1994, the trends from 1994 through 2001 will be free of many of the problems from missing earnings data. Before 1994, however, there is a small but detectable group of workers for whom the 1040 wage plus elective deferrals fail to provide information for covered wages above the HI-taxable maximum.10 These data anomalies could conceivably affect some of the trends in elective deferrals if the missing data are not distributed randomly across time or earnings levels or if trends in deferrals among self-employed earners are different from trends among wage earners.

To analyze trends by earnings percentiles, 10 earnings percentiles by year are calculated that divide earners into 10 equally sized groups. Individuals with earnings less than the 10th percentile amount are in the first or bottom decile, those with earnings between the 10th and 20th percentiles are in the second decile, and so on. Individuals with earnings between the 90th and 100th percentiles are in the 10th or top decile. For analyses by sex, the decile groups are calculated for men and women separately from each group's respective earnings distribution.

Elective Deferred Earnings in the Aggregate, 1990–2001

Overall, elective deferrals have been growing as a percentage of total aggregate earnings from 1990 through 2001 (Table 2). In 1990, elective deferrals made up 1.4 percent of total aggregate earnings; by 2001, they made up 2.9 percent of total aggregate earnings.

This overall trend is composed of a large increase in the percent of positive earners who have deferred earnings, which has doubled from 14 percent in 1990 to 28 percent in 2001, and a small increase in the percent of earnings deferred among those who do elect to defer earnings, which has increased from roughly 5 percent in 1990 to 6 percent in 2001 (Table 2).

Table 2. Elective deferrals in the aggregate, 1990–2001
Year Percent of earners who
make deferrals among
all positive earners
Elective deferrals as a percent of aggregate earnings
Among all earnings Among the earnings of those
who have deferrals
1990 13.6 1.4 5.2
1991 15.9 1.6 5.3
1992 17.5 1.8 5.2
1993 18.5 1.9 5.5
1994 19.8 2.0 5.5
1995 21.3 2.2 5.5
1996 22.8 2.3 5.5
1997 24.4 2.5 5.5
1998 25.6 2.6 5.7
1999 26.8 2.7 5.7
2000 27.6 2.8 5.5
2001 28.1 2.9 5.8
SOURCE: Authors' calculations.

Elective Deferrals by Sex

Men are about 10 percentage points more likely to have positive elective deferrals than are women (Table 3a). Of total aggregate deferred earnings by year, aggregate deferred earnings of men account for more than 60 percent of the total (Table 3b).

Table 3a. Workers with any positive deferred earnings, by sex and year (in percent)
Year Men Women
1990 55.8 44.2
1991 55.6 44.4
1992 54.7 45.3
1993 54.4 45.7
1994 54.5 45.5
1995 54.6 45.4
1996 54.5 45.5
1997 54.2 45.8
1998 54.1 45.9
1999 54.2 45.8
2000 54.1 45.9
2001 53.5 46.5
SOURCE: Authors' calculations on 0.1 percent Master Earnings File.
Table 3b. Share of aggregate deferred earnings, by sex and year (in percent)
Year Men Women
1990 66.3 33.7
1991 65.7 34.3
1992 64.8 35.2
1993 64.2 35.8
1994 64.3 35.7
1995 63.9 36.1
1996 63.7 36.3
1997 63.5 36.5
1998 63.1 36.9
1999 63.2 36.8
2000 62.9 37.1
2001 62.3 37.7
SOURCE: Authors' calculations on 0.1 percent Master Earnings File.

Elective Deferrals by Earnings Deciles

As already noted, the higher earnings deciles are associated with a much higher share of deferrals than are the lower deciles, although the share of the highest decile has declined (Chart 1). In 1990, the top decile had a 55 percent share of aggregate deferred earnings. By 2001, that share had fallen to 48 percent. This section attempts to decompose the decile shares of deferrals into three factors: (1) differences in the share of earnings by year (Chart 2); (2) differences in the deferral as a percent of earnings, among those who have deferrals (Charts 3 and 4); and (3) differences in the percent of workers who have deferrals (Charts 5 and 6).

The share of aggregate deferrals by decile (Chart 1) would match the share of aggregate total earnings by decile (Chart 2) if the other two factors (percent of workers with deferrals and the average deferral as a percentage of earnings) were constant across deciles. In fact, the top decile's share of deferrals is higher than its share of total earnings. This implies that either a higher percentage of top earners have deferrals, or that the deferrals as a percentage of earnings are higher in the top decile, or both.

In addition, the top decile's share of aggregate deferrals has fallen over the study period, from about 55 percent to under 50 percent (Chart 1), while its share of aggregate earnings has risen, from about 35 percent to about 40 percent (Chart 2). These trends imply that either the percentage of top earners taking deferrals must be rising relatively more slowly than in lower deciles, or that the average deferral as a percentage of earnings must be falling relative to the lower deciles, or both.

Chart 1.
Share of aggregate deferred earnings for all workers, by earnings decile and year, 1990 to 2001
Line chart with tabular version below.
Show as table
Table equivalent for Chart 1. Share of aggregate deferred earnings for all workers, by earnings decile and year, 1990 to 2001 (percent)
Year First
decile
Second
decile
Third
decile
Fourth
decile
Fifth
decile
Sixth
decile
Seventh
decile
Eighth
decile
Ninth
decile
Tenth
decile
1990 0.008525 0.032035 0.202637 0.546469 1.250748 3.157493 5.916492 11.4406 22.84146 54.60355
1991 0.010094 0.035194 0.146011 0.533771 1.28731 3.130492 6.204837 11.90415 22.82087 53.92728
1992 0.009728 0.047156 0.174218 0.47737 1.386425 3.208298 6.236846 12.23285 23.50243 52.72468
1993 0.009505 0.04779 0.174589 0.547967 1.375152 3.48985 6.316357 12.28839 23.86653 51.88386
1994 0.008815 0.04268 0.160553 0.499619 1.376031 3.444471 6.303081 12.27175 23.90666 51.98634
1995 0.008813 0.043164 0.19865 0.540052 1.438142 3.448481 6.571033 12.4339 23.79176 51.52601
1996 0.006002 0.050209 0.162316 0.551912 1.478441 3.479835 6.73421 12.69145 23.92795 50.91767
1997 0.009492 0.046061 0.187131 0.62482 1.566196 3.594393 6.795501 13.07992 24.13308 49.9634
1998 0.006202 0.051375 0.202389 0.658143 1.690178 3.649045 7.046325 13.15206 24.1037 49.44058
1999 0.007964 0.049801 0.238602 0.698738 1.767141 3.810829 7.177582 12.98451 24.36144 48.90339
2000 0.007245 0.050686 0.25054 0.692687 1.814776 3.856156 7.124125 13.08179 24.2406 48.88139
2001 0.010003 0.063569 0.269023 0.74407 1.934245 3.92268 7.301434 13.23958 24.14591 48.36949
 
SOURCE: Authors' calculations on 0.1 percent Master Earnings File.
Chart 2.
Aggregate earnings of all workers, as a percentage of total aggregate earnings, by earnings decile and year
Line chart with tabular version below.
Show as table
Table equivalent for Chart 2. Aggregate earnings of all workers, as a percentage of total aggregate earnings, by earnings decile and year (percent)
Year First
decile
Second
decile
Third
decile
Fourth
decile
Fifth
decile
Sixth
decile
Seventh
decile
Eighth
decile
Ninth
decile
Tenth
decile
1990 0.327217 1.302918 2.676006 4.321081 6.151678 8.176737 10.51352 13.49644 17.73016 35.30424
1991 0.322226 1.283281 2.633999 4.245787 6.05759 8.056126 10.36204 13.34615 17.62357 36.06924
1992 0.30683 1.236247 2.562917 4.159492 5.942993 7.918148 10.21242 13.16594 17.42087 37.07415
1993 0.296788 1.233778 2.551799 4.13967 5.905073 7.904588 10.22474 13.19597 17.54215 37.00545
1994 0.29262 1.218488 2.533221 4.111823 5.854549 7.799334 10.07024 12.98809 17.29924 37.83239
1995 0.300889 1.237029 2.549042 4.111907 5.823343 7.745847 9.983838 12.86716 17.12688 38.25407
1996 0.291467 1.211149 2.514711 4.080022 5.795465 7.698596 9.945583 12.80798 17.07632 38.5787
1997 0.3057 1.240357 2.544013 4.087237 5.772751 7.644649 9.827922 12.63153 16.80711 39.13874
1998 0.310606 1.259667 2.57785 4.133086 5.795716 7.637637 9.776586 12.524 16.69618 39.28868
1999 0.318136 1.283684 2.578342 4.109206 5.756387 7.576172 9.685562 12.387 16.51355 39.79196
2000 0.30321 1.238364 2.518058 4.023775 5.65356 7.42422 9.480499 12.1148 16.1955 41.04802
2001 0.314424 1.273709 2.592946 4.147058 5.823072 7.649397 9.752038 12.47955 16.71344 39.25436
 
SOURCE: Authors' calculations on 0.1 percent Master Earnings File.

Deferral amounts among those who elect to defer might be expected to be higher among higher earners, both because high earners are more likely to save greater percentages of their earnings and because the tax advantage of the deferral is worth more to high earners.11 In the data, nonzero deferrals in the top two deciles are in fact higher than the average nonzero deferral and have risen faster, with deferrals in the top decile rising from 1.8 times the average in 1990 to over 2 times the average in 2001 (Chart 3).

Chart 3.
Average nonzero deferral amount by earnings decile and year relative to average nonzero deferral amount by year for all workers
Line chart with tabular version below.
Show as table
Table equivalent for Chart 3. Average nonzero deferral amount by earnings decile and year relative to average nonzero deferral amount by year for all workers (percent)
Year First
decile
Second
decile
Third
decile
Fourth
decile
Fifth
decile
Sixth
decile
Seventh
decile
Eighth
decile
Ninth
decile
Tenth
decile
1990 0.053539 0.078385 0.168189 0.209269 0.253937 0.363189 0.483403 0.677624 1.003395 1.813477
1991 0.050346 0.079626 0.120919 0.198545 0.25683 0.353041 0.485633 0.686953 1.018148 1.855579
1992 0.028831 0.078493 0.1416 0.196628 0.261591 0.356019 0.478132 0.710183 1.035266 1.874912
1993 0.033469 0.085878 0.142605 0.206029 0.257777 0.371452 0.483914 0.705878 1.049564 1.897384
1994 0.029855 0.083744 0.124127 0.197152 0.256214 0.365394 0.473413 0.709497 1.045769 1.91837
1995 0.030503 0.085099 0.141926 0.199084 0.252384 0.36426 0.483552 0.715794 1.064512 1.935876
1996 0.025722 0.08333 0.131472 0.201576 0.256564 0.36352 0.485727 0.715204 1.079452 1.952344
1997 0.028938 0.075182 0.144412 0.207643 0.264411 0.36326 0.492287 0.732158 1.099446 1.973498
1998 0.022248 0.085892 0.158757 0.209755 0.280318 0.365795 0.500666 0.730884 1.101883 1.996651
1999 0.023455 0.080418 0.158147 0.217112 0.274136 0.376163 0.514461 0.732665 1.119759 2.011889
2000 0.021504 0.069143 0.157439 0.19991 0.271969 0.374076 0.511988 0.740582 1.138911 2.034216
2001 0.027133 0.07816 0.149753 0.200487 0.273341 0.374807 0.524941 0.757333 1.159123 2.054258
 
SOURCE: Authors' calculations on 0.1 percent Master Earnings File.

When looking at the ratio of deferrals to earnings among those who defer (Chart 4), the upward trend for the top decile disappears. The average deferral as a percentage of earnings, furthermore, is lower for the top decile than for the next decile and is falling relative to the next five deciles over the study period.12 The top decile's high share of deferrals (observed in Chart 3), in other words, is not attributable to top-decile deferrers electing higher deferrals relative to their earnings than other deciles.

The lower deferral-to-earnings ratio observed in the top decile in Chart 4 relative to the next two deciles may be due in part to the absolute dollar limit on deferrals specified in the law.13 This limit can be expected to most affect top decile deferrals. While most employees do not defer the maximum allowable amount, high earners are the most likely to contribute the maximum allowable amount (Kawachi, Smith, and Toder 2005). For example, the authors found that the percentage of workers contributing the maximum allowable amount to a tax-deferred retirement account in 2003 was 1 percent to 3 percent for workers with earnings under $75,000 (in 2004 dollars) and 53 percent for workers with earnings over $150,000 (in 2004 dollars).

Chart 4.
Ratio of average deferred amount by earnings decile to average total earnings amount by earnings decile for all workers, among those who have deferrals
Line chart with tabular version below.
Show as table
Table equivalent for Chart 4. Ratio of average deferred amount by earnings decile to average total earnings amount by earnings decile for all workers, among those who have deferrals
Year Fourth
decile
Fifth
decile
Sixth
decile
Seventh
decile
Eighth
decile
Ninth
decile
Tenth
decile
1990 0.048715 0.041626 0.045225 0.047006 0.051396 0.057582 0.052132
1991 0.046438 0.042231 0.043983 0.047094 0.051759 0.057861 0.053642
1992 0.046316 0.043383 0.044569 0.046632 0.053743 0.059106 0.050817
1993 0.050445 0.044329 0.048056 0.048571 0.054956 0.06145 0.054587
1994 0.048336 0.044346 0.047822 0.04822 0.056038 0.06195 0.053656
1995 0.048542 0.043513 0.047733 0.049117 0.056563 0.063064 0.05278
1996 0.049315 0.04452 0.04793 0.049732 0.056892 0.064333 0.052917
1997 0.050022 0.045838 0.047828 0.050567 0.058639 0.066052 0.052055
1998 0.050808 0.049171 0.048991 0.052519 0.059837 0.0676 0.054535
1999 0.052469 0.047861 0.050215 0.05386 0.06006 0.068785 0.052969
2000 0.048873 0.047635 0.050351 0.05401 0.0612 0.070337 0.049506
2001 0.048647 0.047777 0.04997 0.055044 0.062073 0.070784 0.053957
 
SOURCE: Authors' calculations on 0.1 percent Master Earnings File.

The final factor affecting the levels and trends of the shares of total deferred earnings among the earnings deciles is the percent of earners with deferrals. This, too, is likely to be higher among high earners because of the tax advantages, greater propensity to save, higher likelihood of being offered a 401(k)-type plan, and the greater ability and willingness to save in a liquidity-constrained vehicle. In the 1990–2001 data, top earners are in fact much more likely to defer, with the 40 percent of top decile earners deferring in 1990 rising to almost 70 percent in 2001 (Chart 5). The trend is strong enough that the prevalence before 1990 (when deferred amounts are missing for workers with earnings over the OASDI tax max) was almost certainly not larger than what is observed in 1990, and probably smaller. Although all the deciles show a rise in the percent of earners with deferrals, the 25 to 28 percentage-point rise found in the top three deciles is larger than the rise in the lower deciles.

Chart 5.
Percent of positive earners with deferrals, by earnings decile for all workers
Line chart with tabular version below.
Show as table
Table equivalent for Chart 5. Percent of positive earners with deferrals, by earnings decile for all workers
Year First
decile
Second
decile
Third
decile
Fourth
decile
Fifth
decile
Sixth
decile
Seventh
decile
Eighth
decile
Ninth
decile
Tenth
decile
1990 0.21575 0.553758 1.632506 3.53855 6.673858 11.77994 16.58516 22.87666 30.84502 40.80121
1991 0.318656 0.702491 1.919177 4.272576 7.966973 14.09328 20.30707 27.542 35.62428 46.19396
1992 0.590055 1.050738 2.151389 4.246437 9.268854 15.75993 22.81232 30.12378 39.70207 49.18316
1993 0.52568 1.030049 2.266108 4.922924 9.874263 17.39007 24.15998 32.22277 42.08993 50.61807
1994 0.584877 1.009679 2.562496 5.020542 10.63993 18.67428 26.37699 34.26642 45.28933 53.68707
1995 0.616819 1.082785 2.988143 5.791638 12.16503 20.21109 29.01103 37.0845 47.71434 56.82659
1996 0.532381 1.374941 2.817091 6.247473 13.14867 21.84257 31.63499 40.49063 50.57618 59.51739
1997 0.800106 1.494412 3.160749 7.340299 14.44819 24.13542 33.67279 43.57601 53.54096 61.7577
1998 0.714193 1.532269 3.26581 8.037917 15.44705 25.55512 36.05376 46.09791 56.03818 63.43744
1999 0.908277 1.656752 4.036333 8.609992 17.24557 27.10292 37.32489 47.41252 58.2038 65.02911
2000 0.930935 2.025412 4.396779 9.573531 18.43628 28.48157 38.44509 48.80488 58.80614 66.39618
2001 1.036302 2.286001 5.049934 10.43211 19.89072 29.41841 39.09685 49.13956 58.5542 66.18515
 
SOURCE: Authors' calculations on 0.1 percent Master Earnings File.

A rise in the percentage with deferrals will not increase a decile's share of aggregate deferrals unless the percentage rises relatively faster than the average percentage. The ratio of the percentage with deferrals to the average percentage (Chart 6) shows that the top decile is losing ground relative to the other deciles by this measure. Although earners in the top decile were 3 times more likely than average to defer in 1990, they were less than 2.5 times more likely to defer by 2001 (Chart 6). This, then, is the explanation for the top decile's falling share of deferrals in Chart 1. The top decile's share of earnings increased slightly (Chart 2), which in itself would have tended to increase the top decile's share of deferrals. But the percentage of workers with deferrals (Chart 5) rose relatively more rapidly in many of the deciles below the top (more than doubling) than in the top decile (less than doubling, from 40 percent to less than 70 percent). In addition, the deferral-to-earnings ratio (Chart 4) rose in many of the deciles below the top but held constant or even fell for the top decile. These two factors—the deciles below the top's relatively more rapid increase in the percentage of workers with deferrals and the deciles below the top's increase in the deferral-to-earnings ratio among those who deferred—more than offset the top decile's increasing share of earnings, giving a decrease in the top decile's share of deferrals.

Chart 6.
Ratio of percent of positive earners deferring by earnings decile and year to percent of total positive earners deferring by year, for all workers
Line chart with tabular version below.
Show as table
Table equivalent for Chart 6. Ratio of percent of positive earners deferring by earnings decile and year to percent of total positive earners deferring by year, for all workers
Year First
decile
Second
decile
Third
decile
Fourth
decile
Fifth
decile
Sixth
decile
Seventh
decile
Eighth
decile
Ninth
decile
Tenth
decile
1990 0.015922 0.040867 0.120479 0.261146 0.492532 0.869362 1.223988 1.688303 2.276369 3.011138
1991 0.020049 0.044199 0.12075 0.26882 0.501263 0.886716 1.277672 1.732877 2.241395 2.906414
1992 0.033739 0.060081 0.123017 0.242812 0.529994 0.901154 1.30441 1.72248 2.270167 2.812296
1993 0.0284 0.055649 0.122428 0.265964 0.533463 0.939508 1.305256 1.740853 2.273932 2.73467
1994 0.029523 0.050966 0.129347 0.253422 0.537071 0.942621 1.33143 1.729665 2.286067 2.70996
1995 0.028892 0.050718 0.139967 0.271285 0.56982 0.946703 1.358899 1.737067 2.234977 2.661801
1996 0.023332 0.060257 0.12346 0.273797 0.576243 0.957255 1.38641 1.77451 2.216512 2.608362
1997 0.032801 0.061265 0.129579 0.300925 0.592322 0.989462 1.380459 1.786453 2.194979 2.531835
1998 0.027879 0.059813 0.127482 0.313763 0.602981 0.997554 1.407372 1.799449 2.187472 2.476305
1999 0.033951 0.061928 0.150875 0.321835 0.644626 1.013085 1.395174 1.772242 2.175611 2.430735
2000 0.033694 0.073306 0.159134 0.346498 0.66727 1.030842 1.391454 1.766409 2.128387 2.403096
2001 0.036867 0.081327 0.179656 0.371132 0.70763 1.046587 1.390906 1.748185 2.083119 2.354597
 
SOURCE: Authors' calculations on 0.1 percent Master Earnings File.

Trends in the Presence of Elective Deferrals by Earnings Decile and Sex

Among men with positive earnings, the percent who have deferred earnings increases almost monotonically by earnings decile (Chart 7).14 In general, over the entire study period, few men below the 4th decile have elective deferrals. The percent of men at the 4th–6th deciles who have elective deferrals has been rising over time, although not as steeply as the percent at the 7th–10th deciles.

The trends are very similar for women (Chart 7). The most noticeable difference is that among women, the 10th decile is further above the 9th decile in terms of the percentage of women who have deferred earnings each year.

Chart 7.
Percent of positive earners with elective deferred earnings, by earnings decile, sex, and year
Line chart with tabular version below.
Show as table
Table equivalent for Chart 7. Percent of positive earners with elective deferred earnings, by earnings decile, sex, and year
Year First
decile
Second
decile
Third
decile
Fourth
decile
Fifth
decile
Sixth
decile
Seventh
decile
Eighth
decile
Ninth
decile
Tenth
decile
Men
1990 0.17331 0.613252 1.266667 2.666311 6.253333 11.7851 17.66431 23.76 35.2353 40.73333
1991 0.282714 0.727077 1.642434 3.689242 7.970917 13.89338 21.27373 28.83683 39.65262 46.26363
1992 0.469673 0.751577 1.664206 3.771306 9.139713 15.56838 23.62099 32.35807 42.41041 48.7854
1993 0.371254 0.968041 1.73694 4.0976 9.505502 16.53846 24.94364 35.00398 44.90121 49.72815
1994 0.469239 0.925443 1.876955 4.510494 10.76642 18.68003 26.56311 36.99166 48.29249 52.93964
1995 0.398765 1.093529 2.765629 5.66062 12.31026 20.0952 29.90738 39.48283 51.18343 55.96295
1996 0.44467 1.11817 2.554003 6.199975 13.3418 23.1385 32.84208 42.32529 53.97713 58.47522
1997 0.562922 1.138354 3.139855 7.106218 14.86115 25.54416 35.44351 45.52164 56.16713 60.8032
1998 0.529948 1.146308 3.130778 7.666708 16.44275 27.44639 37.76655 48.19426 58.84383 62.07322
1999 0.668937 1.483824 4.07493 8.197519 18.14864 28.58185 39.73486 50.32235 60.33812 64.00681
2000 0.622531 1.628352 4.346264 9.637256 19.38458 29.88506 41.80534 50.75431 60.59626 65.7567
2001 0.814079 1.975575 4.512808 10.57358 20.65126 30.3999 41.18281 50.83812 59.75099 65.85249
Women
1990 0.265459 0.468457 1.499063 3.044972 5.949407 9.915678 16.36477 21.59588 29.02873 41.93347
1991 0.376117 0.595611 1.645768 4.01191 6.86628 12.33349 19.15361 25.97179 35.0627 46.77116
1992 0.6827 1.132661 1.970826 4.251358 7.914339 13.82467 22.03258 29.12787 38.27773 51.45872
1993 0.612089 1.071155 2.276547 4.475096 8.859985 15.77659 23.96327 31.38485 40.73451 52.85386
1994 0.627897 1.106294 2.391987 4.813874 9.0746 16.16086 25.57931 34.02601 43.51921 56.36119
1995 0.821355 1.070852 2.464427 5.295585 9.960393 18.21916 27.2994 36.95174 46.45739 58.8382
1996 0.602755 1.377925 2.942443 5.137773 10.63585 19.79331 29.16188 39.83063 49.6914 61.9779
1997 0.911769 1.514939 2.889606 5.82211 12.77879 21.41955 32.00056 42.19386 52.27878 65.0014
1998 0.864316 1.427003 3.2382 6.544108 13.61142 22.32584 33.67193 44.27827 55.36498 67.01427
1999 1.025364 1.954968 3.430115 6.962623 15.08568 24.70318 34.73215 46.1881 56.0923 68.4523
2000 1.179433 2.253148 4.06892 8.348794 14.96355 26.32207 36.61543 46.69317 57.42876 69.43671
2001 1.202114 2.549538 4.571882 9.803144 17.62452 27.09379 37.46862 47.4171 57.84119 69.49399
 
SOURCE: Authors' calculations on 0.1 percent Master Earnings File.

Trends in the Presence of Elective Deferrals by Age and Sex

Among men with positive earnings, the percent with positive elective deferrals by age tends to follow the standard age/earner profile pattern (Chart 8). In other words, the number of individuals who have elective deferrals is low when individuals are in their twenties—that is, when wages also tend to be lower. The percent of workers with elective deferrals reaches its peak at around ages 45 through 55, which also tend to be the ages at which an individual's earnings are at their peak. The percent with elective deferrals then drops beginning at ages in the late fifties and early sixties, reflecting a retirement wage drop.

Patterns by age are similar for female positive earners with elective deferred earnings, although they do appear to reach their peak deferral years at slightly later ages (in the early-to-mid fifties).

Chart 8.
Percent of positive earners with elective deferred earnings, by age, sex, and year
Line chart with tabular version below.
Show as table
Table equivalent for Chart 8. Percent of positive earners with elective deferred earnings, by age, sex, and year
Age Males Females
1990 1995 2001 1990 1995 2001
21 1.380552 3.292447 5.037513 2.444988 2.423823 6.370544
22 2.912056 5.618687 9.064665 3.976143 4.901293 9.151114
23 3.8566 6.892454 13.77727 5.371643 7.630522 13.94799
24 5.603917 12.5 16.44658 8.62069 11.5 17.93103
25 8.203531 15.0368 21.02066 8.525755 15.0978 20.96669
26 9.677419 15.47344 22.72196 10.6113 16.55669 25.12315
27 11.44401 18.92497 24.15459 11.75088 19.86971 25.72347
28 12.83422 19.27583 29.14692 13.88235 21.38906 30.07129
29 12.44109 20.37135 29.62963 14.09245 21.45034 28.60808
30 13.49497 21.92759 30.87533 13.67292 23.9528 28.648
31 15.54307 23.36126 34.62898 12.7907 22.87736 32.13655
32 14.2929 23.9291 31.72867 13.21637 24.20495 31.66667
33 16.20192 26.24568 33.954 13.92252 23.92673 30.39899
34 16.52972 25.89584 33.95349 14.8503 24.23729 30.31423
35 16.69165 25.81244 34.28276 15.31792 25.04083 31.27621
36 18.75312 27.92146 33.84146 17.19198 23.50598 33.64002
37 17.40721 27.97558 35.54572 16.34333 24.08964 32.61486
38 16.6302 29.77473 35.69307 15.9161 24.16865 32.16472
39 19.23077 28.04575 34.79532 15.96215 26.20968 31.62206
40 18.90756 29.60694 36.4813 17.99604 26.3246 33.15276
41 18.68327 29.90271 36.90531 19.46788 27.51563 35.02884
42 19.17973 29.14193 38.34951 18.591 27.52776 34.75098
43 21.37809 29.47487 37.1308 17.34104 27.52126 34.10685
44 19.7601 31.41361 37.97344 17.76462 28.57143 36.1521
45 21.52292 31.86881 39.31104 18.08149 29.13129 34.60674
46 21.33333 29.94522 39.57247 18.76138 28.54356 35.82334
47 22.78936 30.95685 39.95738 19.98314 30.81511 37.66447
48 23.71365 32.98332 38.28603 19.94609 28.6272 37.80207
49 23.2023 33.57713 41.36922 18.86587 27.20365 37.05492
50 23.42808 33.36072 39.69103 20.68966 30.21645 38.39744
51 21.61383 31.97172 41.26779 17.86942 28.58518 38.66221
52 24.02659 32.79939 38.5209 18.91253 33.45259 39.69107
53 21.68675 34.98008 40.22606 20.4005 30.06598 41.20842
54 22.13904 30.16529 38.13333 19.78022 29.78469 38.7741
55 21.76221 30.52246 40.625 21.37097 33.0402 37.31707
56 20.86247 27.61117 37.97468 17.74194 28.49873 35.38899
57 21.32701 30.99042 36.55723 19.32907 27.68212 35.69892
58 23.00123 26.35468 37.94604 18.69301 28.50941 36.23898
59 19.23077 24.68828 35.64266 15 26.70906 33.97436
60 21.08586 25.44987 31.48372 19.46309 25.36349 35.15732
61 18.35821 21.16788 32.39278 18.51852 21.51899 35.76865
62 15.97633 22.28826 27.46667 17.84232 25.30864 30.71895
63 14.57976 21.79931 28.75723 15.46841 19.95516 27.99263
64 13.75246 15.07431 18.5118 16.20879 15.40541 25.7732
65 11.39785 18.33689 17.98839 10.42945 18.10811 19.63351
 
SOURCE: Authors' calculations on 0.1 percent Master Earnings File.

Trends in the Presence of Elective Deferrals by Earnings Decile, Age, and Sex

Among men with positive earnings, the percent who have deferrals within a particular earnings decile differs only slightly by age (Chart 9a). Slight differences by age only appear in the top decile, with the age pattern changing over time, so that by 2001 young earners are slightly more likely to have deferrals than are older workers. This suggests that for men, position in the earnings distribution is generally more important than age in determining whether they have elective deferrals.15

Chart 9a.
Percent of male positive earners with elective deferred earnings, by earnings decile group, age group, and year
Line chart with tabular version below.
Show as table
Table equivalent for Chart 9a. Percent of male positive earners with elective deferred earnings, by earnings decile group, age group, and year
Year 21–25 26–30 31–35 36–40 41–45 46–50 51–55 56–60 61–65
5th–7th deciles
1990 0.077121 0.091925 0.085508 0.088608 0.096085 0.089061 0.105204 0.115533 0.129363
1991 0.093099 0.118655 0.102554 0.110728 0.113668 0.108445 0.126554 0.115533 0.133874
1992 0.108837 0.142328 0.125341 0.104207 0.11421 0.128889 0.138335 0.128205 0.155462
1993 0.125887 0.141452 0.130906 0.121442 0.12508 0.127197 0.145788 0.121859 0.179545
1994 0.133456 0.15883 0.138735 0.151344 0.152266 0.160163 0.158763 0.133508 0.182033
1995 0.159467 0.169805 0.153646 0.154353 0.178145 0.168924 0.185484 0.154895 0.162222
1996 0.162344 0.20007 0.1906 0.175694 0.177606 0.191505 0.194579 0.180387 0.196868
1997 0.18136 0.216649 0.202589 0.198787 0.202407 0.210231 0.232287 0.194083 0.219067
1998 0.206582 0.22959 0.217475 0.220268 0.210499 0.240909 0.228495 0.245575 0.218623
1999 0.205926 0.248164 0.226438 0.23547 0.241058 0.247637 0.243861 0.25078 0.261297
2000 0.225775 0.244151 0.253701 0.246575 0.260529 0.271575 0.269968 0.254271 0.21519
2001 0.231421 0.255183 0.257009 0.243393 0.267765 0.27694 0.283615 0.263415 0.302448
8th–9th deciles
1990 0.238771 0.285078 0.298909 0.300732 0.285487 0.309035 0.307425 0.315534 0.282051
1991 0.310056 0.349057 0.357708 0.34517 0.326507 0.336929 0.357741 0.35562 0.314168
1992 0.321656 0.379864 0.394747 0.37486 0.365787 0.375973 0.373486 0.383937 0.323232
1993 0.385185 0.423984 0.416115 0.402062 0.388911 0.393166 0.408575 0.39839 0.338432
1994 0.397059 0.431489 0.450256 0.438331 0.418301 0.421466 0.430024 0.410867 0.379507
1995 0.447761 0.459294 0.466959 0.475037 0.446833 0.45098 0.451594 0.436449 0.417671
1996 0.447273 0.493524 0.496105 0.503088 0.482256 0.479349 0.486056 0.452697 0.420432
1997 0.466216 0.518015 0.524091 0.5199 0.51081 0.513451 0.519007 0.477768 0.453252
1998 0.498442 0.557552 0.540095 0.548834 0.53975 0.546599 0.539254 0.510024 0.46507
1999 0.497159 0.570807 0.551499 0.560043 0.571114 0.565303 0.554804 0.537051 0.500921
2000 0.472081 0.578821 0.557333 0.561873 0.568133 0.573981 0.563734 0.549742 0.481884
2001 0.511057 0.56429 0.556187 0.55345 0.560029 0.563595 0.571991 0.563452 0.45156
10th decile
1990 0.12 0.340694 0.367521 0.367363 0.386729 0.452345 0.476706 0.493274 0.427699
1991 0.157895 0.416667 0.466817 0.435698 0.433491 0.490937 0.511411 0.523364 0.472
1992 0.266667 0.464419 0.481265 0.475894 0.475088 0.511789 0.522403 0.534669 0.483673
1993 0.210526 0.528736 0.476923 0.519969 0.48271 0.503072 0.532374 0.493002 0.462168
1994 0.571429 0.52521 0.528736 0.563369 0.522074 0.521164 0.547922 0.545858 0.493724
1995 0.5 0.554167 0.579692 0.595148 0.57035 0.53887 0.595159 0.547983 0.508439
1996 0.541667 0.606426 0.622101 0.607873 0.59497 0.577279 0.601281 0.562162 0.497778
1997 0.46875 0.629344 0.649733 0.641239 0.624187 0.605958 0.615442 0.585235 0.491228
1998 0.447368 0.661597 0.675505 0.653093 0.646722 0.613014 0.614865 0.59904 0.517241
1999 0.466667 0.691489 0.705436 0.676971 0.656291 0.636059 0.626932 0.61066 0.55144
2000 0.688889 0.692737 0.709599 0.712557 0.683463 0.655219 0.633617 0.613122 0.567362
2001 0.571429 0.674157 0.725029 0.715824 0.679551 0.657371 0.637066 0.613483 0.552239
 
SOURCE: Authors' calculations on 0.1 percent Master Earnings File.

Patterns are somewhat different for women (Chart 9b). In particular, female earners in the 5th–7th deciles demonstrate a difference in participation by age. At those earnings deciles, older female workers are more likely to have deferrals than are younger female workers, and the difference appears to be growing over time. Age appears to have little effect on earnings deciles 8–10, while position in the earnings distribution continues to matter.

Chart 9b.
Percent of female positive earners with elective deferred earnings, by earnings decile group, age group, and year
Line chart with tabular version below.
Show as table
Table equivalent for Chart 9b. Percent of female positive earners with elective deferred earnings, by earnings decile group, age group, and year
Year 21–25 26–30 31–35 36–40 41–45 46–50 51–55 56–60 61–65
5th–7th deciles
1990 5.748175 7.315843 7.520092 8.35443 9.453782 10.32864 9.65435 10.81871 12.94766
1991 6.316275 8.67747 9.136771 10.19417 10.89788 12.61426 12.66272 11.77326 15.03958
1992 7.964185 8.792924 10.86957 10.54803 12.443 12.73938 16.88159 15.60606 14.35523
1993 8.715809 12.6183 11.06674 11.61826 13.59536 15.1772 16.7364 17.42313 15.38462
1994 8.036952 12.90153 12.43726 12.30159 13.43001 15.11976 17.3913 16.35638 18.18182
1995 9.082218 12.60716 15.07151 13.81839 15.10129 16.5483 19.33868 20.29178 20
1996 9.307764 14.91629 15.72911 15.3554 15.51925 17.659 20.0391 23.30729 20.83333
1997 10.88372 16.53019 16.6122 18.23114 17.3498 20.15306 21.19857 26.53595 25.17815
1998 10.91516 15.79732 18.92462 19.14331 17.49304 23.10167 22.48127 24.48485 28.76712
1999 13.84259 17.89105 20.58664 20.84392 20.10959 22.86797 26.02848 27.45098 23.71795
2000 13.53774 19.09938 21.24798 20.73963 22.71242 22.16312 25.11013 28.0829 29.80973
2001 15.13126 20.15419 22.0937 22.70654 24.75401 24.50142 28.22252 28.09756 32.00795
8th–9th deciles
1990 17.57009 21.9697 23.45618 25.09709 27.2 29.55882 29.61117 27.82956 36.27451
1991 22.65372 28.739 29.21348 28.94737 31.05263 33.75087 34.39681 36.94779 38.86139
1992 24.37811 33.05294 32.78609 32.42986 33.56436 35.30559 38.7037 39.47368 38.32487
1993 25.91588 35.59661 36.74528 36.19632 35.68608 35.84792 39.24162 42.4 36.33952
1994 29.04564 37.40137 39.44186 39.65836 38.79908 38.20809 42.39219 44.24552 39.07455
1995 32.72727 41.10526 41.57723 41.97588 42.92155 41.62705 45.88045 45.60976 37.34644
1996 35.7362 42.93728 44.90385 43.42105 46.7306 44.79479 49.51529 48.88367 42.96296
1997 36.34969 45.69055 47.78846 45.80389 47.75403 49.22426 50.34722 52.06243 45.7346
1998 42.96978 46.72802 51.74303 49.03169 50.25907 51.7337 52.37789 53.00316 48.25986
1999 43.50205 47.18204 52.09437 50.24898 51.82169 53.3604 54.82483 54.88506 48.94118
2000 44.10693 48.01239 50.51699 53.12362 53.02245 55.12763 55.32967 55.7674 48.35886
2001 46.25 49.16143 51.02639 52.13472 53 56.11231 55.81761 55.63571 53.8961
10th decile
1990 17.29323 39.53804 36.92748 43.25658 42.1797 44.0658 50.77187 46.38889 48.60335
1991 27.18447 44.14003 43.11199 45.78904 48.33204 46.93878 54.70085 51.59574 48.86364
1992 36.90476 50.08157 48.83249 52.33571 52.17054 50.68783 57.04809 53.69458 50
1993 36.76471 50.73801 52.58964 52.88462 54.82115 51.81298 54.06977 55.58313 50.85714
1994 42.62295 52.31054 58.2505 54.63495 57.81991 56.06987 59.81183 58.59729 51.51515
1995 47.27273 58.11623 59.87718 58.02161 59.86239 59.2681 61.19403 56.12472 55.02646
1996 51.31579 60 63.95349 61.61017 62.30599 62.76276 63.70023 62.12121 53.5545
1997 58.02469 65.76763 66.63102 64.63621 65.39817 64.9925 67.31392 64.59227 57.40741
1998 55.95238 65.53106 67.13514 68.65046 66.68994 68.24324 68.69919 65.56169 61.65049
1999 67.3913 66.21094 70.75688 69.64433 68.56936 68.81878 69.08078 66.8942 63.83929
2000 68.23529 69.9115 72.29437 70.74236 68.80597 70 70.75065 66.16415 62.38938
2001 62.35294 68.75 70.18141 72.58753 70.62405 69.7491 69.48052 67.21311 61.60338
 
SOURCE: Authors' calculations on 0.1 percent Master Earnings File.

Trends in Elective Deferred Amounts as a Portion of Total Earnings Among Those Who Defer, by Sex

On average, a greater portion of male high earners' total earnings take the form of elective deferrals (Chart 10). For example, in 2001 the median of deferred earnings as a percent of total earnings among those who defer was approximately 6 percent for men in the 9th–10th earnings deciles and about 3.5 percent for those in the 4th decile. Note that the portion of total earnings by decile appears almost U-shaped, with the 1st and 2nd deciles having a greater portion of their total earnings as deferrals than the 3rd through 5th deciles. These low deciles are also more jagged, reflecting smaller sample sizes because of the smaller number of earners in these deciles who defer. It may be that men in these deciles who choose to defer are a more select group. Although the portion of total earnings that is received as elective deferrals has risen slightly from 1994 through 2001 at all earnings deciles, the upper 80 percent of the earnings distribution has had the steepest increase in the same time period.16 The crossover observed between the 9th and 10th deciles may be related to the highest decile earners reaching the legal limit for deferrals as observed in Chart 4.

Chart 10.
Median of deferred earnings as a percent of total earnings by earnings decile, sex, and year, among those who defer
Line chart with tabular version below.
Show as table
Table equivalent for Chart 10. Median of deferred earnings as a percent of total earnings by earnings decile, sex, and year, among those who defer
Year First
decile
Second
decile
Third
decile
Fourth
decile
Fifth
decile
Sixth
decile
Seventh
decile
Eighth
decile
Ninth
decile
Tenth
decile
Men
1990 4.833333333 4.020729252 3.160070714 2.940997893 3.039963974 3.245482979 3.911197015 4.246262729 5.000016887 5.296716577
1991 5.361344538 3.763935255 2.970567452 2.874600496 3.054588776 3.362797432 4.010229255 4.435961503 4.993369531 5.272348926
1992 5.11576063 3.836487006 2.729875673 2.778496358 3.00024727 3.526162551 4.01694299 4.538216561 5.026382719 5.305379672
1993 6.133129525 3.747494122 3.103895446 2.528234517 3.36888217 3.50558206 4.058084346 4.695882118 5.153337161 5.407015469
1994 4.514440245 4.000344935 3.082296775 2.794795198 3.075692271 3.485698411 4.146411159 4.864388082 5.21698029 5.508561879
1995 6.714127816 3.989816517 3.336350877 3.068995243 3.161706237 3.696886031 4.153928743 4.897969846 5.415156786 5.561061254
1996 5.162955792 4.613604251 3.081477572 2.903893923 3.356347694 3.826760857 4.381987617 5 5.55016435 5.597181922
1997 7.499421341 4.432009392 3.713812404 3.016110206 3.43165487 3.975682579 4.499472317 5.077235339 5.85708427 5.744606757
1998 5.000641272 4.07668731 3.147351055 3.16503527 3.608827134 4.037482896 4.689644273 5.13466358 5.966751142 5.869111134
1999 5.072709871 4.367610618 2.638171252 3.236650532 3.553878529 4.072731486 4.841606416 5.257656725 6.03701302 5.870591661
2000 5.39596692 3.836436446 3.28446056 3.182276339 3.756191081 4.122651585 4.879546 5.296342094 6.11839722 5.898311818
2001 5.536421934 4.404706807 3.76001518 3.4904165 3.697402599 4.220075696 5.019011553 5.349421633 6.182687313 5.97412267
Women
1990 4 4.407206355 3.928272311 4.196681915 3.609304788 3.289927147 3.634899787 3.998646696 4.447750056 5.009923081
1991 5.523628655 5.32812569 3.369639991 3.50004338 3.831942512 3.193940146 3.645503106 3.962934779 4.481726736 5.137985218
1992 5.66447449 3.870125039 3.887316819 3.922896356 3.289719654 3.433275356 3.591215242 3.947213272 4.637097241 5.198430702
1993 5.987125963 3.749981636 4.152387297 3.579907657 3.666667629 3.289930995 3.977250815 4.061246488 4.906417847 5.46338877
1994 5.4999145 4.67684176 4.191385036 3.752363166 3.364832673 3.366119922 4 4.012390105 4.979374526 5.506514333
1995 7.135100393 4.028156816 3.750166836 3.294533825 3.756124895 3.36949495 3.999954241 4.143800005 5.000142011 5.766051808
1996 6.923055294 5.02753304 3.391120539 3.731104058 3.696727346 3.727147924 4.052426017 4.2604331 4.999902562 5.930531697
1997 5.999290025 3.755570703 3.158541729 3.757307753 3.828840603 3.652419935 4.023786839 4.363464497 5.060733925 6.018686253
1998 5.392492175 5.494962329 4.029196301 4.303558972 3.630634106 3.936951376 4.122335769 4.392031105 5.094052916 6.182637985
1999 6.188454896 4.773216437 3.999895382 3.763973266 3.999892018 3.923348632 4.141126499 4.68031634 5.086913118 6.280098155
2000 5.012442232 4.166257887 3.884899396 3.212842738 3.7436487 3.992011086 4.282139227 4.654740029 5.201049053 6.502382096
2001 5.072007298 4.497025902 3.45347863 4.00158844 3.659623148 4.000146806 4.133508648 4.66818544 5.413759138 6.516202032
 
SOURCE: Authors' calculations on 0.1 percent Master Earnings File.

In general, the patterns for women are fairly similar to those for men. Among those who defer, women with earnings at the 9th decile receive a slightly lower portion of earnings as elective deferrals than do their respective male counterparts. Women in the 7th decile also receive a somewhat lower proportion of their earnings as elective deferrals, and the proportion has grown less steeply over time. On the other hand, women in the 4th–6th deciles receive a slightly higher percentage of their earnings as deferrals. However, note that the graph of female earners appears less smooth because of smaller sample sizes in the lower earnings deciles. In general, for women, only the upper 70 percent of the earnings distribution has experienced an increase since 1994, with the lower 30 percent experiencing a decrease since 1994. Recall that percentiles are developed separately for men and women. Because prevalence of deferrals is correlated with the earnings amount and because women have lower earnings, this is not necessarily a surprising result.

Conclusion

From 1990 through 2001, the percentage of earners taking elective deferrals has grown at the 5th decile and higher at all earnings levels and ages and for both sexes. Earners in the top half of the earnings distribution started in 1990 with a higher percentage of workers with deferrals, and since then this percentage has risen more among earners in the top half of the earnings distribution than among earners in the bottom half. For all ages and both sexes, the top decile moved from about 40 percent to 50 percent of positive earners with deferrals in 1990 to about 60 percent to 70 percent in 2001.

A strong age pattern in the percentage with deferrals seems to be mostly explained by this higher propensity to take deferrals among high earners. The peak earnings ages also have the higher percentage of deferrals, and earners of the same sex and earnings level have very little difference by age in the percentage with deferrals.

Overall, elective deferrals have been growing as a percentage of total aggregate earnings. The portion of total earnings that is received as elective deferrals has risen at least slightly over time at all earnings deciles for men and at the upper 70 percent of the earnings distribution for women.

Notes

1. The history of the exclusion from and then inclusion in the national average wage index is documented in Clingman and Kunkel (1992). Beginning in 1978, the index was based on the average wage calculated from wages reported on W-2s as taxable for the personal income tax. It did not, under this definition, include elective deferrals, even when deferrals began to be included in Social Security creditable wages starting in 1984. The growing gap between the Social Security wages and the income tax wages on which the index is based led (by the end of the 1980s) to a concern that the index, which is used among other things for adjusting benefits to growth in earnings, would grow increasingly out of tune with the Social Security wages themselves. This concern led to 1989 legislation that added deferrals to the wages used in the index.

2. See Utendorf (1999) for further discussion of Social Security's administrative data.

3. The labels and box numbers on the W-2 forms vary over the years and between employers. The wage to be reported on the 1040 form has typically been called "Wages, tips, other compensation." Before 1983 the OASDI wage was often labeled "FICA wage," for the Federal Insurance Contributions Act. With the advent of Medicare-only wages in 1983, which were also FICA taxable wages, the FICA label disappeared. Some employers started reporting two boxes, one labeled "Social Security wages" or "Social Security (OASDI)" and the other labeled "Medicare wages." For a time, some employers kept a single "Social Security" box with a notation indicating when the wages were Medicare-only. Two boxes became necessary in 1991 when it became possible for OASDI wages to differ from HI wages even in OASDI-covered employment. The numbering of the boxes has become standard in recent years (1040 wages in Box 1, OASDI wages in Box 3, HI wages in Box 5) but varied considerably in earlier years.

4. Starting in 1983 (for federal workers hired before 1984 under the Civil Service Retirement System) and 1986 (state and local government workers), some government workers not covered under OASDI were brought into Medicare coverage.

5. Like OASDI-covered wages, HI-taxable self-employment earnings can be higher than the OASDI-taxable self-employment earnings starting in 1991. In addition, there is now a type of "HI-only" self-employment earnings, not because of Medicare-qualifying employment but because when wages are at or above the OASDI taxable maximum, any additional self-employment income is taxed for HI but not for OASDI.

6. There is no wholly satisfactory term that covers all employment and earnings covered under Social Security and/or Medicare (that is, OASDI and/or HI). Both are in covered employment under the definition in the Social Security Act. The term "Social Security earnings" will be avoided here, however, because of potential confusion with the use of "Social Security wages" on the W-2 to mean OASDI-taxable wages. "FICA" includes both OASDI and HI-only wages, but does not include self-employment earnings, which are covered under "SECA," the Self Employment Contributions Act.

7. Some possibilities include the reports of household and agricultural employees under certain scenarios—state and local worker who also receives income such as election work that is non-OASDI/HI taxable or cases where a distribution from deferred compensation is taxable in one year for OASDI/HI purposes and taxable in a different year for personal income tax purposes. It is possible that some types of elective deferrals are not explicitly reported as such in the administrative data, even though the deferrals are included in the HI-taxable amount.

8. Although the HI-taxable wage should always be greater than or equal to the OASDI-taxable wage, there are some anomalous cases in the data with an OASDI wage but no HI wage.

9. The MEF extract was matched to a 2001 Continuous Work History Sample (CWHS) extract to obtain sex and year of birth of sample members and to double check the processing of the MEF. The 2001 CWHS was used because this note is a byproduct of an ongoing study for which 2001 was originally the most reliable, recent data available. At the time this note was written, 2 more years of data (through 2003) could be obtained but would require significant reprocessing without adding much to the results. A 0.1 extract is used rather than a 1 percent extract because computing limitations make work with the larger file impractical because of both space and speed limitations.

10. More specifically, even though the data are supposedly uncensored since 1982 (because there is no taxable maximum on the 1040 wage variable), the total earnings variable shows evidence of some censoring at the taxable maximum from 1982 through 1993. Among individuals with earnings greater than or equal to the OASDI tax max who were not self-employed, approximately 2.5 percent to 7 percent of individuals in 1982 through 1990 had total earnings exactly equal to the OASDI tax max. In 1991 through 1993 (when the HI tax max was greater than the OASDI tax max), these percentages dropped to less than 1 percent. In these years, among individuals with total earnings greater than or equal to the HI tax max who were not self-employed, approximately 2 percent of earners had earnings exactly equal to the HI tax max. (This translates to less than 0.5 percent of workers with earnings greater than or equal to the OASDI tax max in the 1991–1993 period.) The percentages just given are for workers at or above the OASDI or HI taxable maximum. As a percentage of positive earnings, no more than 1 percent of workers have total earnings exactly at the OASDI tax max from 1982 through 1990, and a negligible percent have total earnings exactly at the OASDI tax max from 1991 through 2001.

11. Changing tax rates and changing alternative minimum tax (AMT) coverage may also affect trends in deferrals among high earners.

12. The bottom three deciles, for which both earnings and deferrals are small, have been left out of Chart 4.

13. The maximum allowable employee contribution limit for a 401(k) plan was $7,979 in 1990 and gradually rose to $10,500 in 2001. See Kawachi, Smith, and Toder (2005, Table 1a, p. 2), for maximum allowable dollar limits from 1990 through 2006 and for an extended discussion of contribution limits specified in federal income tax law.

14. Men are placed into earnings deciles by the position of their total earnings in the total male earnings distribution by year. An identical procedure is used for women.

15. The 1st through 4th deciles are not analyzed because a small number people in those deciles have deferrals. We currently have no explanation for the jagged line for men aged 21–25 in the top decile in Chart 9a.

16. The most conservative way to observe the trends in Chart 10 is to begin in 1994, because some of the apparent growth from 1990 to 1994 (particularly in the 9th and 10th deciles) may be from formerly censored self-employed earners entering the series.

References

Clingman, Michael D., and Jeffrey L. Kunkel. 1992. Average wages for 1985-90 for indexing under the Social Security Act. Actuarial Note No. 133. Office of the Chief Actuary, Social Security Administration (September).

Employee Benefit Research Institute. 2005. History of 401(k) plans: An update. In Facts from EBRI (February). http://www.ebri.org/pdf/publications/facts/0205fact.a.pdf.

Kawachi, Janette, Karen E. Smith, and Eric J. Toder. 2005. Making maximum use of tax-deferred retirement accounts. CRR Working Paper No. 2005-19. Center for Retirement Research at Boston College (December).

Utendorf, Kelvin R. 1999. Recent changes in earnings distributions in the United States: Age and cohort effects. ORES Working Paper Series, No. 82. Office of Policy, Office of Research, Evaluation, and Statistics, Social Security Administration (April).