Over the last 30 years, defined contribution (DC) savings plans, such as 401(k)s, have gradually replaced defined benefit (DB) pension plans as the primary privately sponsored vehicle for providing retirement income. Employers now sponsor over 650,000 401(k) plans with more than 87 million participants and $2 trillion in assets.1 401(k) plan participants outnumber DB plan participants by 5 to 2. This continuation application proposes projects that analyze how institutional, economic, and psychological mechanisms interact to shape participation, savings, asset allocation, savings leakage, annuitization, and decumulation outcomes in defined contribution savings plans. Key mechanisms that our ongoing research has identified include financial incentives, institutional constraints, procrastination, anchoring, status quo bias, framing, salience, peer influence, heuristics, mental accounting, and bounded rationality. Our goal is to better understand these mechanisms so that institutions can be optimized to improve retirement savings outcomes. Building on our current R01, this continuation proposal has four aims that complement our previous and ongoing work. First, we plan to study the features of savings plans that affect participation, savings rates, and retirement wealth accumulation. Specifically, we will study, in the context of employer adoption of Roth 401(k) plans, the effects of changing the menu of retirement accounts and the role of savings heuristics. We will also measure the impact of numerical psychological anchors, salient thresholds, and goal-setting prompts that are included in communications to employees. Second, we plan to identify institutional features of employer-sponsored plans that affect savings crowd-out and savings "leakage." We will measure the link between the automatic enrollment of "unmotivated" savers and resulting increases in 401(k) cash-outs that occur when workers separate from firms. We will also measure the magnitude of crowd-out across different types of savings accounts, including health savings accounts (HSA) and retirement savings accounts. Third, we plan to study institutional features of retirement plans that affect decumulation decisions. We will study the effect of changing the set of annuitization options in DB and DC accounts, the effect of making partial annuitization salient as an alternative to total annuitization, and the impact of new decision tools that make longevity risk and annuitization easier to understand. Fourth, we will expand the time horizon and number of firms in our 12-year longitudinal database on defined contribution savings plan participants. We will also create four entirely new databases on annuitization decisions in both DB and DC retirement plans. These new databases will cover several million individuals. 1 See EBRI Databook on Employee Benefits (2010).

Public Health Relevance

Defined contribution savings plans have become the primary source of voluntary retirement saving in the U.S. and play a critical role in funding the retiremen consumption and out-of-pocket health expenditures of older adults. The proposed research will analyze how institutional, economic, and psychological mechanisms interact to shape participation, savings, asset allocation, savings leakage, annuitization, and decumulation choices in defined contribution savings plans. The application also proposes to expand existing data and create a number of new data resources on savings plan participants.

National Institute of Health (NIH)
National Institute on Aging (NIA)
Research Project (R01)
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Study Section
Social Sciences and Population Studies Study Section (SSPS)
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Phillips, John
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National Bureau of Economic Research
United States
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Beshears, John; Choi, James J; Laibson, David et al. (2014) What Makes Annuitization More Appealing? J Public Econ 116:2-16
Hastings, Justine S; Madrian, Brigitte C; Skimmyhorn, William L (2013) FINANCIAL LITERACY, FINANCIAL EDUCATION AND ECONOMIC OUTCOMES. Annu Rev Econom 5:347-373
(2013) What makes annuitization more appealing? Natl Bur Econ Res Bull Aging Health :4-5
Beshears, John; Choi, James J; Laibson, David et al. (2011) Behavioral economics perspectives on public sector pension plans. J Pension Econ Financ 10:315-336
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Choi, James J; Laibson, David; Madrian, Brigitte C (2011) $100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans. Rev Econ Stat 93:748-763
Choi, James J; Laibson, David; Madrian, Brigitte C (2010) Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds. Rev Financ Stud 23:1405-1432
Benjamin, Daniel J; Choi, James J; Strickland, A Joshua (2010) Social Identity and Preferences. Am Econ Rev 100:1913-1928
Choi, James J; Laibson, David; Madrian, Brigitte C (2009) Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect. Am Econ Rev 99:2085-2095

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