Do Defaults have Spillover Effects? The Effect of the Default Asset on Retirement Plan Contributions
The 2006 Pension Protection Act allowed defined contribution plans to establish lifecycle funds as the default asset allocation, leading to a marked increase in their use. In this study we examine how a change in the default asset to a lifecycle fund affects employees’ decisions about how much to save. We exploit a change in the Thrift Savings Plan (TSP) for new hires at the U.S. Office of Personnel Management that altered the default asset from a low-risk, low-return government securities fund to a lifecycle fund. We investigate whether the change in the default asset spills over into a difference in the likelihood of remaining passive in the contribution rate decision. We also examine how other contribution decisions, including the tendency to maximize the employer match, differ based on the default fund.
Acknowledgments: This research was supported by the U.S. Social Security Administration through grant #5RC08098400-10 to the National Bureau of Economic Research as part of the SSA Retirement Research Consortium and the Laura and John Arnold Foundation through a grant to the Stanford Institute for Economic Policy Research (SIEPR). The findings and conclusions expressed are solely those of the authors and do not represent the views of SSA, any agency of the Federal Government, the NBER, the Laura and John Arnold Foundation, SIEPR or any other institution with which the authors are affiliated. We are grateful to Paula Gablenz and Konhee Chang for exceptional research assistance.
c 2018 Goda, Levy, Manchester, Sojourner and Tasoff. All rights reserved.