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Contributions to Defined Contribution Pension Plans

Author

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  • James J. Choi

    (School of Management, Yale University, New Haven, Connecticut 06520-8200; and National Bureau of Economic Research, Cambridge, Massachusetts 02138)

Abstract

Defined contribution (DC) pension plans are an increasingly important means of financing retirement consumption. Because individuals often have substantial discretion over how much is contributed to their DC pension plan, studying DC contribution choices provides general insights into the determinants of individual economic decision making. The literature has found strong deviations from many predictions of classical frictionless optimizing models. I provide an overview of the US DC pension system and review the literature on the effect of matching contributions, automatic enrollment, active choice deadlines, choice overload, financial literacy, peer effects, mental accounting, and personal experience on individuals' DC contributions.

Suggested Citation

  • James J. Choi, 2015. "Contributions to Defined Contribution Pension Plans," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 161-178, December.
    • Handle: RePEc:anr:refeco:v:7:y:2015:p:161-178
    DOI: 10.1146/annurev-financial-111914-041834
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    Keywords

    401(k); behavioral economics; Individual Retirement Account; nudges; retirement; saving;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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