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Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance

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Author Info
James J. Choi
David Laibson
Brigitte C. Madrian
Andrew Metrick

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Abstract

We assess the impact on savings behavior of several different 401(k) plan features, including automatic enrollment, automatic cash distributions, employer matching provisions, eligibility requirements, investment options, and financial education. We also present new survey evidence on individual savings adequacy. Many of our conclusions are based on an analysis of micro-level administrative data on the 401(k) savings behavior of employees in several large corporations that implemented changes in their 401(k) plan design.Our analysis identifies a key behavioral principle that should partially guide the design of 401(k) plans: employees often follow "the path of least resistance." For better or for worse, plan administrators can manipulate the path of least resistance to powerfully influence the savings and investment choices of their employees.

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Publisher Info
Paper provided by Northwestern University/University of Chicago Joint Center for Poverty Research in its series JCPR Working Papers with number 257.

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Date of creation: 08 Jan 2002
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Handle: RePEc:wop:jopovw:257

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  1. Sendhil Mullainathan & Richard H. Thaler, 2000. "Behavioral Economics," NBER Working Papers 7948, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. B. Douglas Bernheim & Daniel M. Garrett, 1996. "The Determinants and Consequences of Financial Education in the Workplace: Evidence from a Survey of Households," NBER Working Papers 5667, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Leslie E. Papke, 1995. "Participation in and Contributions to 401(k) Pension Plans: Evidence om Plan Data," NBER Working Papers 4199, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Papke, Leslie E. & Poterba, James M., 1995. "Survey evidence on employer match rates and employee saving behavior in 401(k) plans," Economics Letters, Elsevier, vol. 49(3), pages 313-317, September. [Downloadable!] (restricted)
  5. Shlomo Benartzi & Richard H. Thaler, 2002. "How Much Is Investor Autonomy Worth?," Journal of Finance, American Finance Association, vol. 57(4), pages 1593-1616, 08. [Downloadable!] (restricted)
  6. James M. Poterba & Steven F. Venti & David A. Wise, 1997. "Personal Retirement Saving Programs and Asset Accumulation: Reconciling the Evidence," NBER Working Papers 5599, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Poterba, James M & Venti, Steven F & Wise, David A, 1996. "How Retirement Saving Programs Increase Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 91-112, Fall. [Downloadable!] (restricted)
  8. Shlomo Benartzi & Richard H. Thaler, 2001. "Naive Diversification Strategies in Defined Contribution Saving Plans," American Economic Review, American Economic Association, vol. 91(1), pages 79-98, March. [Downloadable!] (restricted)
  9. William F. Bassett & Michael J. Fleming & Anthony P. Rodrigues, 1998. "How workers use 401(k) plans: the participation, contribution, and withdrawal decisions," Staff Reports 38, Federal Reserve Bank of New York. [Downloadable!]
  10. B. Douglas Bernheim & Daniel M. Garrett & Dean M. Maki, 1997. "Education and Saving: The Long-Term Effects of High School Financial Curriculum Mandates," Working Papers 97012, Stanford University, Department of Economics. [Downloadable!]
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  11. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2001. "For Better or For Worse: Default Effects and 401(k) Savings Behavior," NBER Working Papers 8651, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Patrick J. Bayer & B. Douglas Bernheim & John Karl Scholz, 1996. "The Effects of Financial Education in the Workplace: Evidence from a Survey of Employers," Working Papers 96011, Stanford University, Department of Economics. [Downloadable!]
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  13. James M. Poterba & Steven F. Venti & David A. Wise, 1995. "Lump-Sum Distributions from Retirement Saving Plans: Receipt and Utilization," NBER Working Papers 5298, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Engen, Eric M & Gale, William G & Scholz, John Karl, 1996. "The Illusory Effects of Saving Incentives on Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 113-38, Fall. [Downloadable!] (restricted)
  15. Eric M. Engen & William G. Gale & John Karl Scholz, 1994. "Do Saving Incentives Work?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1994-1), pages 85-180. [Downloadable!]
  16. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1839-1872, September. [Downloadable!] (restricted)
  17. David I. Laibson & Andrea Repetto & Jeremy Tobacman, 1998. "Self-Control and Saving for Retirement," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1998-1), pages 91-196. [Downloadable!]
  18. Brigitte C. Madrian & Dennis F. Shea, 2001. "THE POWER OF SUGGESTION: INERTIA IN 401(k) PARTICIPATION AND SAVINGS BEHAVIOR," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1149-1187, November. [Downloadable!] (restricted)
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