Keywords

401(k) features, behavioral inertia, savings behavior

Abstract

We assess the effect 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

“Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance.” 2002. In James M. Poterba, editor, Tax Policy and the Economy, Vol. 16, Cambridge, MA: MIT Press, pp. 67-113 (with James J. Choi, David Labison and Andrew Metrick). https://www.nber.org/chapters/c10863.pdf

Document Type

Peer-Reviewed Article

Publication Date

2002

Publisher

MIT Press

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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