The Implementation of State Sponsored Retirement Plans

Abstract

State sponsored retirement plans have been proposed and implemented to provide people with new access to defined contribution retirement opportunities. Many of these people have no other options and typically have low income and are less educated. We study optimal plan implementation in a theoretical model and analyze how the right menu of portfolio options and default option should be chosen based on the financial sophistication of the participants, their behavioral biases, the prevalent political philosophy, and the political economy. The paper provides several novel positive and normative implications, which appear to be empirically plausible.

JEL Classification: G11, G1, G2, G28