RT Journal Article
SR Electronic
T1 Incorporating Employee Heterogeneity into Default Rules for Retirement Plan Selection
JF Journal of Human Resources
JO J Hum Resour
FD University of Wisconsin Press
SP 198
OP 235
DO 10.3368/jhr.48.1.198
VO 48
IS 1
A1 Gopi Shah Goda
A1 Colleen Flaherty Manchester
YR 2013
UL http://jhr.uwpress.org/content/48/1/198.abstract
AB 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.