There are several factors that prevent employees from taking advantage of employer-provided pension plans. In this project, a social marketing approach was used to develop a comprehensive, cost-effective plan to improve participation in and contribution to Supplementary Retirement Accounts (SRAs.) By specifically targeting subgroups, the project was able to help identify and overcome key obstacles to savings.
A growing body of research suggests that savings decisions are affected by a wide range of influences that play no role in a conventional neoclassical model of savings behavior, including framing effects, default effects, and inattention.
Increasing the number of options available to an individual is generally seen as beneficial. However, sufficiently large choice sets can also cause individuals to focus on all the things that can go wrong, lose the ability to distinguish between options, and otherwise negatively impact the choosing process. Research has found a negative effect of the number of offered funds on 401(k) participation rates. Further analysis has revealed that as the number of funds rises, participants become more likely to avoid stocks in favor of money market and bond funds.
According to standard economic models, a risk-averse consumer who faces uncertainty about length-of-life should place a high value on life annuities that provide guaranteed income for life. Yet numerous studies show that few consumers voluntarily annuitize their retirement savings. As a whole, however, the literature has failed to find a sufficiently general explanation of consumer aversion to annuities. This paper suggests that a psychologically richer model of consumer behavior can explain under-annuitization.
n recent years, a number of academic researchers have conducted analyses of retirement plan designs to better understand features that promote greater participation and contribution rates. Renowned experts in behavioral finance have linked low participation and savings rates in defined contribution (DC) plans to such human behaviors as procrastination and inertia, which has been described as “the divergence between desire and effective action.” With regards to saving for retirement, many workers simply don’t get around to enrolling in their employer’s retirement plan.
Economists have developed models to explain the impact of pensions and Social Security on various outcomes, such as retirement, worker turnover, and saving. However, some recent research has raised questions about these conventional models. This issue of Research Dialogue summarizes findings from our ongoing research on pensions and Social Security.