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Pension Plan Characteristics and Framing Effects in Employee Savings Behavior

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Author Info
David Card () (University of California, Berkeley, NBER and IZA)
Michael R. Ransom () (Brigham Young University and IZA)

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Abstract

In this paper we document the importance of framing effects in the retirement savings decisions of college professors. Pensions in many post-secondary institutions are funded by a combination of an employer contribution and a mandatory employee contribution. Employees can also make tax-deferred contributions to a supplemental savings account. A standard lifecycle savings model predicts a "dollar-for-dollar" tradeoff between supplemental savings and the combined regular pension contributions made on behalf of an employee. Contrary to this prediction, we estimate that each additional dollar of employee contributions leads to a 70 cent reduction in supplemental savings, whereas each dollar of employer contributions generates only a 30 cent reduction. The asymmetry - which is consistent with different "mental accounts" for employer and employee contributions - provides further evidence of the sensitivity of individual savings decisions to the precise details of their pension plan.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2939.

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Length: 31 pages
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:iza:izadps:dp2939

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Related research
Keywords: pensions; framing effects; retirement savings;

Other versions of this item:

Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions
J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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References listed on IDEAS
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    Other versions:
  2. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
    Other versions:
  3. James Choi & David Laibson & Brigitte Madrian & Andrew Metrick, 2005. "Optimal Defaults and Active Decisions," Levine's Bibliography 666156000000000488, UCLA Department of Economics. [Downloadable!]
    Other versions:
  4. Poterba, James M & Venti, Steven F & Wise, David A, 1996. "How Retirement Saving Programs Increase Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 91-112, Fall. [Downloadable!] (restricted)
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    Other versions:
  7. Alan L. Gustman & Thomas L. Steinmeier, 2001. "Imperfect Knowledge, Retirement and Saving," Working Papers wp012, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
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    Other versions:
  13. Orley Ashenfelter & David Card, 2002. "Did the Elimination of Mandatory Retirement Affect Faculty Retirement?," American Economic Review, American Economic Association, vol. 92(4), pages 957-980, September. [Downloadable!]
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  15. Engen, Eric M & Gale, William G & Scholz, John Karl, 1996. "The Illusory Effects of Saving Incentives on Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 113-38, Fall. [Downloadable!] (restricted)
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  19. Annamaria Lusardi, 2000. "Explaining Why So Many Households Do Not Save," JCPR Working Papers 150, Northwestern University/University of Chicago Joint Center for Poverty Research.
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  21. Olivia S. Mitchell & Sylvester J. Schieber, . "Defined Contribution Pensions: New Opportunities, New Risks," Pension Research Council Working Papers 96-18, Wharton School Pension Research Council, University of Pennsylvania.
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  23. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2005. "The importance of default options for retirement saving outcomes: evidence from the United States," CeRP Working Papers 43, Center for Research on Pensions and Welfare Policies, Turin (Italy). [Downloadable!]
    Other versions:
  24. David I. Laibson & Andrea Repetto & Jeremy Tobacman, 1998. "Self-Control and Saving for Retirement," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1998-1), pages 91-196. [Downloadable!]
  25. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, vol. 91(4), pages 832-857, September. [Downloadable!] (restricted)
    Other versions:
  26. Annamaria Lusardi, 2000. "Explaining Why So Many Households Do Not Save," JCPR Working Papers 203, Northwestern University/University of Chicago Joint Center for Poverty Research.
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