An Equilibrium Theory of Retirement Plan Design
51 Pages Posted: 16 Aug 2016 Last revised: 16 Aug 2019
Date Written: July 9, 2019
We develop an equilibrium theory of employer-sponsored retirement plan design using a behavioral contract theory approach. The operation of the labor market results in retirement plans that generally cater to, rather than correct, workers' mistakes. Our theory provides new explanations for a range of facts about retirement plan design, including the use of employer matching contributions and the use of default contribution rates in automatic enrollment plans that lower, rather than raise, many workers' savings. We provide novel evidence for our theory from a sample of plans.
Keywords: behavioral contract theory, retirement, defaults, 401k
JEL Classification: D14, D86, D91, J26, J32
Suggested Citation: Suggested Citation