Incorporating Employee Heterogeneity into Default Rules for Retirement Plan Selection

48 Pages Posted: 29 Jun 2010 Last revised: 28 Jun 2021

Multiple version iconThere are 2 versions of this paper

Date Written: July 2010

Abstract

We study the effect of incorporating heterogeneity into default rules by examining the choice between retirement plans at a firm which 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.

Suggested Citation

Goda, Gopi Shah and Manchester, Colleen Flaherty, Incorporating Employee Heterogeneity into Default Rules for Retirement Plan Selection (July 2010). NBER Working Paper No. w16099, Available at SSRN: https://ssrn.com/abstract=1629547

Gopi Shah Goda (Contact Author)

Stanford University ( email )

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Stanford, CA 94305
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6507360480 (Phone)

Colleen Flaherty Manchester

University of Minnesota ( email )

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Minneapolis, MN 55455
United States
612 625-9667 (Phone)

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