Do Employer Pension Contributions Reflect Employee Preferences? Evidence from a Retirement Savings Reform in Denmark
This paper studies how firms set contributions to employer-provided 401(k)-type pension plans. Using a reform that decreased the subsidy for contributions to capital pension accounts for Danish workers in the top income tax bracket, we provide strong evidence that employers' contributions are based on their employees' savings preferences. We find an immediate decrease in employer contributions to capital accounts, whose magnitude increased in the share of employees directly affected by the reform. This response was large relative to average employee responses within private IRA-type plans and was accompanied by a similar-magnitude shift of employer contributions to annuity accounts.
We thank Raj Chetty, David Cutler, Matthew Gentzkow, Nathan Hendren, Lawrence Katz, David Laibson, Daniel LeMaire, Søren Leth-Petersen, Christian Schultz, and numerous participants at the Harvard Labor/Public Finance Lunch and the Zeuthen Workshop for helpful comments and discussions. This research was supported by the Danish Council for Independent Research (grant number 11-104234). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Itzik Fadlon & Jessica Laird & Torben Heien Nielsen, 2016. "Do Employer Pension Contributions Reflect Employee Preferences? Evidence from a Retirement Savings Reform in Denmark," American Economic Journal: Applied Economics, vol 8(3), pages 196-216. citation courtesy of