Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance

56 Pages Posted: 15 Dec 2001 Last revised: 25 Oct 2010

See all articles by James J. Choi

James J. Choi

Yale School of Management; National Bureau of Economic Research (NBER)

David Laibson

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Brigitte C. Madrian

Brigham Young University Marriott School of Business; National Bureau of Economic Research (NBER)

Andrew Metrick

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

Date Written: December 2001

Abstract

We assess the impact on savings behavior of several different 401(k) plan features, including automatic enrollment, automatic cash distributions, employer matching provisions, eligibility requirements, investment options, and financial education. We also present new survey evidence on individual savings adequacy. Many of our conclusions are based on an analysis of micro-level administrative data on the 401(k) savings behavior of employees in several large corporations that implemented changes in their 401(k) plan design. Our analysis identifies a key behavioral principle that should partially guide the design of 401(k) plans: employees often follow 'the path of least resistance.' For better or for worse, plan administrators can manipulate the path of least resistance to powerfully influence the savings and investment choices of their employees.

Suggested Citation

Choi, James J. and Laibson, David I. and Madrian, Brigitte C. and Metrick, Andrew, Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance (December 2001). NBER Working Paper No. w8655. Available at SSRN: https://ssrn.com/abstract=294093

James J. Choi

Yale School of Management ( email )

135 Prospect Street
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National Bureau of Economic Research (NBER) ( email )

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David I. Laibson (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
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617-496-3402 (Phone)
617-495-8570 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Brigitte C. Madrian

Brigham Young University Marriott School of Business ( email )

Provo, UT 84602
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andrew Metrick

Yale School of Management ( email )

165 Whitney Avenue
New Haven, CT 06511
United States
(203)-432-3069 (Phone)

HOME PAGE: http://faculty.som.yale.edu/andrewmetrick/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

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