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Incorporating Employee Heterogeneity into Default Rules for Retirement Plan Selection

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  • Gopi Shah Goda
  • Colleen Flaherty Manchester

Abstract

We study the effect of incorporating heterogeneity into default rules by examining the choice between retirement plans at a firm which transitioned from a defined benefit (DB) to a defined contribution (DC) plan. The default plan for existing employees varied discontinuously depending on their age. Employing regression discontinuity techniques, we find that the default increased the probability of enrollment in the default plan by 60 percentage points. We develop a framework to solve for the optimal default rule analytically and numerically and find that considerable welfare gains are possible if defaults vary by observable characteristics.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16099.

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Date of creation: Jul 2010
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Handle: RePEc:nbr:nberwo:16099

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Cited by:
  1. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2011. "Behavioral Economics Perspectives on Public Sector Pension Plans," NBER Working Papers 16728, National Bureau of Economic Research, Inc.

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