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Optimal Pension Plan Default Policies when Employees are Biased

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  • Asen Ivanov

    (Queen Mary University of London)

Abstract

What is the optimal default contribution rate or default asset allocation in pension plans? Could active decision (i.e., not setting a default and forcing employees to make a decision) be optimal? These questions are studied in a model in which each employee is biased regarding her optimal contribution rate or asset allocation. In this model, active decision is never optimal and the optimal default is, depending on parameter values, one of three defaults. The paper also explores how the parameters affect the optimal default and the total loss in the population at the optimal default.

Suggested Citation

  • Asen Ivanov, 2019. "Optimal Pension Plan Default Policies when Employees are Biased," Working Papers 893, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:893
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    File URL: https://www.qmul.ac.uk/sef/media/econ/research/workingpapers/2019/wp893.pdf
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    References listed on IDEAS

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    Cited by:

    1. Asen Ivanov, 2021. "Optimal pension plan default policies when employees are biased," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(3), pages 583-596, June.

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    More about this item

    Keywords

    optimal defaults; libertarian paternalism; nudging; pension plan design;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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