EconPapers    
Economics at your fingertips  
 

Incorporating Employee Heterogeneity Into Default Rules for Retirement Plan Selection

Gopi Goda and Colleen Manchester

Working Papers, Center for Retirement Research at Boston College from Center for Retirement Research

Abstract: This paper examines the effect of incorporating individual-level heterogeneity into default rules for retirement plan selection. We use data from a large employer that transitioned from a defined benefit (DB) plan to a defined contribution (DC) plan, offering existing employees a choice of plans. Employees who did not make a choice were defaulted to switch to the DC plan if under age 45 or remain in the DB plan if age 45 or older. Using a regression discontinuity framework, we estimate that the default increased the probability of enrolling in one plan over the other by 60 percentage points. We develop a framework to solve for the optimal age-based default rule analytically and use our results to empirically evaluate the optimal age-based default rule for the firm in our setting. We show that for a broad range of levels of risk aversion, conditioning the default for the choice between pension plans on age can substantially improve outcomes relative to a uniform default policy. Our results suggest that considerable welfare gains are possible by varying defaults by observable characteristics.

New Economics Papers: this item is included in nep-age and nep-lab
Date: 2010-05
References: Add references at CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
http://crr.bc.edu/working-papers/incorporating-emp ... ment-plan-selection/ (application/pdf)

Related works:
Journal Article: Incorporating Employee Heterogeneity into Default Rules for Retirement Plan Selection (2013) Downloads
Working Paper: Incorporating Employee Heterogeneity into Default Rules for Retirement Plan Selection (2010) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:crr:crrwps:wp2010-5

Access Statistics for this paper

More papers in Working Papers, Center for Retirement Research at Boston College from Center for Retirement Research Contact information at EDIRC.
Bibliographic data for series maintained by Amy Grzybowski ().

 
Page updated 2019-05-21
Handle: RePEc:crr:crrwps:wp2010-5