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Pension Plan Characteristics and Framing Effects in Employee Savings Behavior

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Author Info
David Card
Michael Ransom

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Abstract

In this paper we document the importance of framing effects in the retirement savings decisions of college professors. Pensions in many post-secondary institutions are funded by a combination of an employer contribution and a mandatory employee contribution. Employees can also make tax-deferred contributions to a supplemental savings account. A standard lifecycle savings model predicts a "dollar-for-dollar" tradeoff between supplemental savings and the combined regular pension contributions made on behalf of an employee. Contrary to this prediction, we estimate that each additional dollar of employee contributions leads to a 70 cent reduction in supplemental savings, whereas each dollar of employer contributions generates only a 30 cent reduction. The asymmetry - which is consistent with different "mental accounts" for employer and employee contributions - provides further evidence of the sensitivity of individual savings decisions to the precise details of their pension plan.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13275.

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Date of creation: Jul 2007
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Handle: RePEc:nbr:nberwo:13275

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Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions
J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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    Other versions:
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    Other versions:
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    Other versions:
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  12. Orley Ashenfelter & David Card, 2002. "Did the Elimination of Mandatory Retirement Affect Faculty Retirement?," American Economic Review, American Economic Association, vol. 92(4), pages 957-980, September. [Downloadable!]
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  22. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, vol. 91(4), pages 832-857, September. [Downloadable!] (restricted)
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  23. Annamaria Lusardi, 2000. "Explaining Why So Many Households Do Not Save," JCPR Working Papers 203, Northwestern University/University of Chicago Joint Center for Poverty Research.
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