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$100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans

Author

Listed:
  • James J. Choi

    (Yale University and NBER)

  • David Laibson

    (Harvard University and NBER)

  • Brigitte C. Madrian

    (Harvard University and NBER)

Abstract

We identify employees at seven companies whose 401(k) investment choices are dominated because they are contributing less than the employer matching contribution threshold despite being vested in their match and being able to make penalty-free 401(k) withdrawals for any reason because they are older than 59½. At the average firm, 36% of match-eligible employees over age 59½ forgo arbitrage profits that average 1.6% of their annual pay, or $507. A survey educating employees about the free lunch they are forgoing raised contribution rates by a statistically insignificant 0.67% of income among those completing the survey. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • James J. Choi & David Laibson & Brigitte C. Madrian, 2011. "$100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 748-763, August.
  • Handle: RePEc:tpr:restat:v:93:y:2011:i:3:p:748-763
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    References listed on IDEAS

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    1. James J. Choi & David Laibson & Brigitte C. Madrian, 2009. "Reducing the Complexity Costs of 401(k) Participation Through Quick Enrollment," NBER Chapters, in: Developments in the Economics of Aging, pages 57-82, National Bureau of Economic Research, Inc.
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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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