Pension Plan Characteristics and Framing Effects in Employee Savings Behavior

31 Pages Posted: 13 Aug 2007

See all articles by David Card

David Card

University of California, Berkeley - Department of Economics; Institute for the Study of Labor (IZA); National Bureau of Economic Research (NBER)

Michael R. Ransom

Brigham Young University - Department of Economics; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 2007

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.

Keywords: pensions, framing effects, retirement savings

JEL Classification: D91, G23, J26

Suggested Citation

Card, David E. and Ransom, Michael R., Pension Plan Characteristics and Framing Effects in Employee Savings Behavior (July 2007). IZA Discussion Paper No. 2939, Available at SSRN: https://ssrn.com/abstract=1006188 or http://dx.doi.org/10.2139/ssrn.1006188

David E. Card

University of California, Berkeley - Department of Economics ( email )

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Michael R. Ransom (Contact Author)

Brigham Young University - Department of Economics ( email )

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