TY  - JOUR
AU  - Brown,Jeffrey R.
AU  - Weisbenner,Scott J.
TI  - Who Chooses Defined Contribution Plans?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12842
PY  - 2007
Y2  - January 2007
UR  - http://www.nber.org/papers/w12842
L1  - http://www.nber.org/papers/w12842.pdf
N1  - Author contact info:
Jeffrey Brown
Department of Finance
University of Illinois at Urbana-Champaign
515 East Gregory Drive
Champaign, IL 61820
Tel: 217/333-3322
E-Mail: brownjr@illinois.edu

Scott Weisbenner
University of Illinois at Urbana-Champaign
Department of Finance
340 Wohlers Hall, MC-706
1206 South Sixth Street
Champaign, IL  61820
Tel: 217/333-0872
Fax: 217/244-9867
E-Mail: weisbenn@illinois.edu
M1  - published as Jeffrey R. Brown, Scott J. Weisbenner. "Who Chooses Defined Contribution Plans?," in Jeffrey Brown, Jeffrey Liebman and David A. Wise, editors, "Social Security Policy in a Changing Environment" University of Chicago Press (2009)

M3  - presented at "Retirement Research", October 19-22, 2006
AB  - This paper provides new evidence on what types of individuals are most likely to choose a defined contribution (DC) plan over a defined benefit (DB) plan.  Making use of administrative data from the State Universities Retirement System (SURS) of Illinois, we study the decisions of nearly 50,000 new employees who make a one-time, irrevocable choice between a traditional DB plan, a portable DB plan, and an entirely self-managed DC plan.  Because the SURS-covered earnings of these employees are not covered under the Social Security system, their choices provides insight into the DB vs. DC preferences of individuals with regard to a primary source of their retirement income.  We find that a majority of participants fail to make an active decision and are thus defaulted into the traditional DB plan after 6 months.  We also find that those individuals who are most likely to be financially sophisticated are most likely to choose the self-managed DC plan, despite the fact that, given plan parameters, the DC plan is inferior to the portable DB plan under reasonable assumptions about future financial market returns.  We discuss both rational and behavioral reasons that might explain this finding.
ER  -