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Incorporating Employee Heterogeneity into Default Rules for Retirement Plan Selection

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  • Gopi Shah Goda
  • Colleen Flaherty Manchester

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.

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  • Gopi Shah Goda & Colleen Flaherty Manchester, 2013. "Incorporating Employee Heterogeneity into Default Rules for Retirement Plan Selection," Journal of Human Resources, University of Wisconsin Press, vol. 48(1), pages 198-235.
    • Handle: RePEc:uwp:jhriss:v:48:y:2013:i:1:p:198-235
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    More about this item

    JEL classification:

    • H8 - Public Economics - - Miscellaneous Issues
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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