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Incorporating Employee Heterogeneity into Default Rules for Retirement Plan Selection

Incorporating Employee Heterogeneity into Default Rules for Retirement Plan Selection Abstract: We study the effect of incorporating heterogeneity into default rules by examining the choice between retirement plans at a firm that transitioned from a defined benefit (DB) to a defined contribution (DC) plan. The default plan for existing employees varied discontinuously depending on their age. Employing regression discontinuity techniques, we find that the default increased the probability of enrollment in the default plan by 60 percentage points. We develop a framework to solve for the optimal default rule analytically and numerically and find that considerable welfare gains are possible if defaults vary by observable characteristics. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Human Resources University of Wisconsin Press

Incorporating Employee Heterogeneity into Default Rules for Retirement Plan Selection

Journal of Human Resources , Volume 48 (1) – Jan 31, 2013

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Publisher
University of Wisconsin Press
Copyright
©by the Board of Regents of the University of Wisconsin System
ISSN
1548-8004
Publisher site
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Abstract

Abstract: We study the effect of incorporating heterogeneity into default rules by examining the choice between retirement plans at a firm that transitioned from a defined benefit (DB) to a defined contribution (DC) plan. The default plan for existing employees varied discontinuously depending on their age. Employing regression discontinuity techniques, we find that the default increased the probability of enrollment in the default plan by 60 percentage points. We develop a framework to solve for the optimal default rule analytically and numerically and find that considerable welfare gains are possible if defaults vary by observable characteristics.

Journal

Journal of Human ResourcesUniversity of Wisconsin Press

Published: Jan 31, 2013

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