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Effects of Public Policies on the Disposition of Pre-Retirement Lump-Sum Distributions: Rational and Behavioral Influences

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  • Burman, Leonard E.
  • Coe, Norma B.
  • Dworsky, Michael
  • Gale, William G.

Abstract

We examine workers' disposition of pre-retirement lump-sum distributions, using policy changes in 1986 and 1992 as natural experiments. We find that higher taxes on cash-outs increase rollovers, consistent with both rational and behavioral motives. Several results, however, only make sense in a behavioral framework. Controlling for effective tax rates, structuring the tax as a "penalty" or adding withholding taxes on cash-outs increases rollovers. Allowing employers to unilaterally cash out balances for departing employees alters the impact of other policies. These results suggest that both rational and behavioral factors influence workers’ choices, and that policies can interact in important ways.

Suggested Citation

  • Burman, Leonard E. & Coe, Norma B. & Dworsky, Michael & Gale, William G., 2012. "Effects of Public Policies on the Disposition of Pre-Retirement Lump-Sum Distributions: Rational and Behavioral Influences," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(4), pages 863-887, December.
    • Handle: RePEc:ntj:journl:v:65:y:2012:i:4:p:863-87
    DOI: 10.17310/ntj.2012.4.07
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    Cited by:

    1. Timothy (Jun) Lu & Olivia S. Mitchell & Stephen P. Utkus & Jean A. Young, 2017. "Borrowing From the Future? 401(K) Plan Loans and Loan Defaults," National Tax Journal, National Tax Association;National Tax Journal, vol. 70(1), pages 77-110, March.
    2. Teresa Ghilarducci & Siavash Radpour & Anthony Webb, 2018. "New Evidence on the Effect of Economic Shocks on Retirement Plan Withdrawals," SCEPA working paper series. 2018-03, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.

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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • D1 - Microeconomics - - Household Behavior

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