Keywords

401(k) plan design, automatic enrollment, behavioral savings

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.

Original Publication Citation

“Saving for Retirement on the Path of Least Resistance.” 2006. In Edward J. McCaffrey and Joel Slemrod, editors, Behavioral Public Finance: Toward a New Agenda, New York: Russell Sage Foundation, pp. 304-351 (with James Choi, David Laibson and Andrew Metrick). https://muse.jhu.edu/chapter/285256

Document Type

Peer-Reviewed Article

Publication Date

2006

Publisher

Russell Sage Foundation

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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