One size fits all? Tailoring retirement plan defaults
M. Scott Donald,
F. Douglas Foster,
Susan Thorp () and
Geoffrey J. Warren
Journal of Economic Behavior & Organization, 2018, vol. 145, issue C, 546-566
Default investment options in retirement plans are a potent influence on member choice, however little is known about how plans set them. We investigate how retirement plan providers choose default investment strategies for passive members. We interview plan executives and survey members during a review of default settings in 2013-14 prompted by a change in the regulation of the Australian retirement system. Passive plan members are different from active members in ways that matter for investment strategy. Passive members are less willing to take financial risks; they are also younger, less wealthy and more often female. Executives say they design defaults with passive members in mind, but they seem to overlook some key factors. For example, plan executives set high risk exposure in default investment strategies. Executives also assume motivations for defaulting that do not match those reported by members. Most plan executives think of passive members as uninterested in their retirement savings but passive members say they trust their plans, and lack skill rather than interest. The heterogeneity, trust and low skill of passive members make opting out of the default less likely and smart defaults more appealing.
Keywords: Pensions; Default; Financial services; Regulation (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:145:y:2018:i:c:p:546-566
Access Statistics for this article
Journal of Economic Behavior & Organization is currently edited by Neilson, William Stuart
More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().