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Research ArticleArticles

Incorporating Employee Heterogeneity into Default Rules for Retirement Plan Selection

Gopi Shah Goda and Colleen Flaherty Manchester
Journal of Human Resources, January 2013, 48 (1) 198-235; DOI: https://doi.org/10.3368/jhr.48.1.198
Gopi Shah Goda
Gopi Shah Goda is a senior research scholar and coordinator of the Postdoctoral Fellow Program at the Stanford Institute for Economic Policy Research (SIEPR), and a faculty research fellow at the National Bureau of Economic Research (NBER). Colleen Flaherty Manchester is an assistant professor at the Carlson School of Management at the University of Minnesota
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Colleen Flaherty Manchester
Gopi Shah Goda is a senior research scholar and coordinator of the Postdoctoral Fellow Program at the Stanford Institute for Economic Policy Research (SIEPR), and a faculty research fellow at the National Bureau of Economic Research (NBER). Colleen Flaherty Manchester is an assistant professor at the Carlson School of Management at the University of Minnesota
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Abstract

We study the effect of incorporating heterogeneity into default rules by examining the choice between retirement plans at a firm that transitioned from a defined benefit (DB) to a defined contribution (DC) plan. The default plan for existing employees varied discontinuously depending on their age. Employing regression discontinuity techniques, we find that the default increased the probability of enrollment in the default plan by 60 percentage points. We develop a framework to solve for the optimal default rule analytically and numerically and find that considerable welfare gains are possible if defaults vary by observable characteristics.

  • Accepted February 2012.
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Journal of Human Resources: 48 (1)
Journal of Human Resources
Vol. 48, Issue 1
1 Jan 2013
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Incorporating Employee Heterogeneity into Default Rules for Retirement Plan Selection
Gopi Shah Goda, Colleen Flaherty Manchester
Journal of Human Resources Jan 2013, 48 (1) 198-235; DOI: 10.3368/jhr.48.1.198

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Incorporating Employee Heterogeneity into Default Rules for Retirement Plan Selection
Gopi Shah Goda, Colleen Flaherty Manchester
Journal of Human Resources Jan 2013, 48 (1) 198-235; DOI: 10.3368/jhr.48.1.198
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  • Article
    • Abstract
    • I. Introduction
    • II. Background and Related Literature
    • III. Causal Effect of Default on Plan Enrollment
    • IV. Solving for the Optimal Age-Based Default Rule
    • V. Numerical Simulations of the Optimal Age-Based Default Rule
    • VI. Conclusion
    • Appendix 1 Robustness to Choice of Bandwidth
    • Appendix 2 Monte Carlo Simulations
    • Footnotes
    • References
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