Keywords
401(k) matching, employee inattention, retirement contributions
Abstract
We identify employees at seven companies whose 401(k) investment choices are dominated because they are contributing less than the employer matching contribution threshold despite being vested in their match and being able to make penalty-free 401(k) withdrawals for any reason because they are older than 59½. At the average firm, 36% of match-eligible employees over age 59½ forgo arbitrage profits that average 1.6% of their annual pay, or $507. A survey educating employees about the free lunch they are forgoing raised contribution rates by a statistically insignificant 0.67% of income among those completing the survey.
Original Publication Citation
“$100 Bills on the Sidewalk: Violations of No-Arbitrage in 401(k) Accounts.” 2011. The Review of Economics and Statistics 113(3):748-63 (with James J. Choi and David Laibson). http://dx.doi.org/10.1162/REST_a_00100
BYU ScholarsArchive Citation
Choi, James J.; Laibson, David; and Madrian, Brigitte C., "$100 Bills on the Sidewalk: Violations of No-Arbitrage in 401(k) Accounts" (2011). Faculty Publications. 9044.
https://scholarsarchive.byu.edu/facpub/9044
Document Type
Peer-Reviewed Article
Publication Date
2011
Publisher
The Review of Economics and Statistics
Language
English
College
Marriott School of Business
Department
Finance
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