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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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    Cited by:

    1. Luković Stevan & Marinković Srđan, 2019. "Comparative Analysis of Retirement Benefits in Private Pension Funds and Public Pension System," Economic Themes, Sciendo, vol. 57(2), pages 145-164, June.
    2. John Beshears & James J. Choi & J. Mark Iwry & David C. John & David Laibson & Brigitte C. Madrian, 2020. "Building Emergency Savings through Employer-Sponsored Rainy-Day Savings Accounts," Tax Policy and the Economy, University of Chicago Press, vol. 34(1), pages 43-90.
    3. Christian Moser & Pedro Olea de Souza e Silva, 2019. "Optimal Paternalistic Savings Policies," Opportunity and Inclusive Growth Institute Working Papers 17, Federal Reserve Bank of Minneapolis.
    4. Johannes Hagen & Daniel Hallberg & Gabriella Sjögren, 2022. "A Nudge to Quit? The Effect of a Change in Pension Information on Annuitisation, Labour Supply and Retirement Choices Among Older Workers," The Economic Journal, Royal Economic Society, vol. 132(643), pages 1060-1094.
    5. Nadia Karamcheva & Victoria Perez-Zetune, 2023. "Defined Benefit and Defined Contribution Plans and the Distribution of Family Wealth: Working Paper 2023-02," Working Papers 58305, Congressional Budget Office.
    6. Itzik Fadlon & Jessica Laird & Torben Heien Nielsen, 2016. "Do Employer Pension Contributions Reflect Employee Preferences? Evidence from a Retirement Savings Reform in Denmark," American Economic Journal: Applied Economics, American Economic Association, vol. 8(3), pages 196-216, July.
    7. Olckers, Matthew, 2021. "On track for retirement?," Journal of Economic Behavior & Organization, Elsevier, vol. 190(C), pages 76-88.
    8. Choi, James J. & Haisley, Emily & Kurkoski, Jennifer & Massey, Cade, 2017. "Small cues change savings choices," Journal of Economic Behavior & Organization, Elsevier, vol. 142(C), pages 378-395.
    9. Enrico Rubaltelli & Lorella Lotto, 2021. "Nudging freelance professionals to increase their retirement pension fund contributions," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 16(2), pages 551-565, March.
    10. Dorothee Franzen, 2020. "Qualität der betrieblichen Altersversorgung. Ergebnisse einer Expertenbefragung," Working Paper Forschungsförderung 169, Hans-Böckler-Stiftung, Düsseldorf.
    11. Cookson, J. Anthony, 2018. "When saving is gambling," Journal of Financial Economics, Elsevier, vol. 129(1), pages 24-45.
    12. Jonathan Cribb & Carl Emmerson, 2016. "What happens when employers are obliged to nudge? Automatic enrolment and pension saving in the UK," IFS Working Papers W16/19, Institute for Fiscal Studies.
    13. Esteban Garcia-Miralles & Jonathan M. Leganza, 2021. "Public Pensions and Private Savings," CEBI working paper series 21-06, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    14. Timothy F. Harris & Aaron Yelowitz, 2017. "Nudging Life Insurance Holdings In The Workplace," Economic Inquiry, Western Economic Association International, vol. 55(2), pages 951-981, April.
    15. Mitchell, O.S. & Piggott, J., 2016. "Workplace-Linked Pensions for an Aging Demographic," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 865-904, Elsevier.
    16. Mason, Richard, 2019. "Digital enrollment architecture and retirement savings decisions: Evidence from the field," Other publications TiSEM 58639618-e34e-4b5c-8c8c-a, Tilburg University, School of Economics and Management.
    17. Huong Trang Kim, 2023. "Linking Trait Affectivity, Cognitive Ability, and Preferences Among Top Managers: Insights From a Lab-In-The-Field Experiment," Evaluation Review, , vol. 47(3), pages 479-503, June.
    18. Cynthia Weiyi Cai, 2020. "Nudging the financial market? A review of the nudge theory," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3341-3365, December.
    19. repec:cup:judgdm:v:16:y:2021:i:2:p:551-565 is not listed on IDEAS
    20. Billari, Francesco C. & Favero, Carlo A. & Saita, Francesco, 2023. "Online financial and demographic education for workers: Experimental evidence from an Italian Pension Fund," Journal of Banking & Finance, Elsevier, vol. 151(C).
    21. Antonia Settle, 2021. "'Don't play if you can't win': exploring household disengagement with the pension system through financial diaries data," Melbourne Institute Working Paper Series wp2021n29, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    22. Love, David A., 2017. "Countercyclical retirement accounts," European Economic Review, Elsevier, vol. 98(C), pages 32-48.
    23. Laurence O'Brien, 2023. "The effect of tax incentives on private pension saving," IFS Working Papers W23/10, Institute for Fiscal Studies.
    24. Daniela Di Cagno & Werner Güth & Noemi Pace, 2021. "Experimental evidence of behavioral improvement by learning and intermediate advice," Theory and Decision, Springer, vol. 91(2), pages 173-187, September.
    25. Hugh Hoikwang Kim & Raimond Maurer & Olivia S. Mitchell, 2019. "How Cognitive Ability and Financial Literacy Shape the Demand for Financial Advice at Older Ages," NBER Working Papers 25750, National Bureau of Economic Research, Inc.

    More about this item

    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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