Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance

James J. Choi, David Laibson, Brigitte C. Madrian, Andrew Metrick

NBER Working Paper No. 8655
Issued in December 2001
NBER Program(s):   AG   AP   PE

We assess the impact 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.

(244 K)

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

Published: Poterba, James (ed.) Tax Policy and the Economy 16. 2002.

This paper is available as PDF (244 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX