Automatic enrollment and job market turnover

2019 ◽  
pp. 1-11
Author(s):  
Angela A. Hung ◽  
Jill Luoto ◽  
Jeremy Burke ◽  
Stephen P. Utkus ◽  
Jean A. Young
Keyword(s):  
Labor Market ◽  
Employee Participation ◽  
Wealth Accumulation ◽  
Defined Contribution ◽  
Job Market ◽  
Design Features ◽  
Retirement Plan ◽  
Defined Contribution Plans ◽  
Plan Design ◽  
Retirement Wealth

AbstractAutomatic enrollment has substantially increased employee participation in defined contribution plans. Yet little is known about how retirement plan design features influence retirement wealth accumulation in a setting of labor market turnover. We find that employees separating from jobs with automatic enrollment plans are significantly more likely to take a cash distribution (and potentially pay a tax penalty) than those separating from jobs with voluntary enrollment plans, offsetting some of the benefits from automatic enrollment. Yet given the sizeable improvements in plan participation from automatic enrollment, wealth accumulation for automatically enrolled participants, net of cash-outs and penalties, remain higher than it would have been under voluntary enrollment.

Financial Advice, Plan Choice, and Retirement Plan Satisfaction

2020 ◽  
pp. JFCP-18-00050
Author(s):  
Michael P. Ryan ◽  
Brenda J. Cude
Keyword(s):  
Risk Tolerance ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Retirement Plans ◽  
Retirement Plan ◽  
Defined Contribution Plans ◽  
Plan Choice ◽  
Public Sector Employees ◽  
Selection Of

Most private sector employees have access to defined contribution retirement plans while public sector employees often may choose defined benefit or defined contribution plans. This research utilized a survey of faculty to analyze retirement plan satisfaction. Advice from a financial planner was positively associated with satisfaction with portability. Retirement plan knowledge was negatively associated with satisfaction on the decision period. Selection of a defined benefit plan was positively related to four aspects of satisfaction and negatively related to regret. Financial planners assisting individuals who face such choices should acknowledge the decision's challenges and evaluate the client's level of retirement planning knowledge. Focusing on long-term goals and the client's investment and mobility risk tolerance may be helpful, especially after market corrections.

Are Defined Contribution Plans a Commitment Device?

2018 ◽  
Vol 29 (2) ◽  
pp. 234-244 ◽  
Author(s):  
Tao Guo ◽  
Michael Finke
Keyword(s):  
The United States ◽  
Self Control ◽  
Wealth Accumulation ◽  
Defined Contribution ◽  
Defined Contribution Plans ◽  
Long Run ◽  
The Future ◽  
Short Run ◽  
Commitment Devices ◽  
Commitment Device

Many who want to save more for retirement are tripped up by short-run temptations. Yet, some can still achieve their goals by using commitment devices to limit suboptimal behavior. Defined contribution plans in the United States resemble a commitment device because they are framed as savings for the future and penalize early withdrawals. This study investigates whether defined contribution plans are particularly useful for households that value the future and exhibit self-control problems. We find that participation in defined contribution plans has a greater impact on wealth accumulation among households with hyperbolic preferences. Our results suggest that those who find it difficult to resist short-run temptation can achieve long-run goals through the use of less liquid accounts and automated savings.

Are You Saving for Retirement? Racial/Ethnic Differentials in Contributory Retirement Savings Plans

2019 ◽  
Vol 75 (4) ◽  
pp. 837-848 ◽  
Author(s):  
Christopher R Tamborini ◽  
Changhwan Kim
Keyword(s):  
Labor Market ◽  
Ethnic Disparities ◽  
Later Life ◽  
Ordinary Least Squares ◽  
Wealth Accumulation ◽  
Defined Contribution ◽  
Retirement Plans ◽  
Probit Regression ◽  
Advantages And Disadvantages ◽  
Racial Ethnic

Abstract Objectives: How individuals and families accumulate retirement resources during working years is a key aspect of aging with implications for later life. This study examines how much, and by what mechanisms, savings in retirement plans vary by race/ethnicity. Method: Using representative survey data and linked W-2 tax records, we estimate the probability of participation in employer-sponsored defined contribution (DC) retirement plans with probit regression, and contribution levels with ordinary least squares (OLS) models. We use Heckman models to adjust for potential sample selection. Results: Black and Hispanic workers have lower participation and contributions in employer-sponsored DC retirement plans than do white workers, while Asian Americans have higher levels. The bulk of racial/ethnic differences is attributed to socioeconomic position, especially education and labor market circumstances like earnings. Differentials are also associated with family circumstances, namely for black workers. After accounting for education, labor market, and family covariates, social-psychological factors appear to explain only small portions of differences, especially for black and Hispanic. Discussion: This study clarifies how racial/ethnic disparities in socioeconomic circumstances generate advantages and disadvantages in retirement wealth accumulation. Lower DC retirement plan participation and contributions among minorities in work life represent an underappreciated earlier-life channel through which racial inequalities in income and wealth in later life are generated.

An Equilibrium Theory of Retirement Plan Design

2020 ◽  
Vol 12 (2) ◽  
pp. 22-45 ◽  
Author(s):  
Ryan Bubb ◽  
Patrick L. Warren
Keyword(s):  
Labor Market ◽  
Contract Theory ◽  
Equilibrium Theory ◽  
Theory Approach ◽  
Retirement Plans ◽  
Retirement Plan ◽  
Plan Design

We develop an equilibrium theory of employer-sponsored retirement plan design using a behavioral contract theory approach. The operation of the labor market results in retirement plans that generally cater to, rather than correct, workers’ mistakes. Our theory provides new explanations for a range of facts about retirement plan design, including the use of employer matching contributions and the use of default contribution rates in automatic enrollment plans that lower many workers’ savings. We provide novel evidence for our theory from a sample of plans. (JEL D86, G51, J26, J32, J41)

scholarly journals The use of stock options and retirement plans to retain non-executive employees

2010 ◽  
Vol 7 (3) ◽  
pp. 57-72
Author(s):  
Kathleen Weiden ◽  
Jane Mooney
Keyword(s):  
Stock Options ◽  
Stock Option ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Retirement Plans ◽  
Compensation Contracts ◽  
Large Sample ◽  
Retirement Plan ◽  
Defined Contribution Plans ◽  
Defined Benefit Plans

Firms expend significant resources to retain employees. In this paper, we examine how firms that use stock options grant them differently when they also utilize retirement plans in non-executive employee compensation contracts. Using a large sample of US firms, we examine the relation between the stock option proportion of pay of non-executive employees and firms’ use of a retirement plan of any type. We then examine how firms’ use of stock options is affected by the type of plan (defined benefit or defined contribution) used by the firm. We find that firms reduce their use of stock options when there are other deferred pay mechanisms in place, suggesting they act as substitutes. We also find that firms with defined benefit retirement plans reduce their use of stock options for non-executives to a greater extent than firms with defined contribution plans, suggesting a greater degree of substitutability between defined benefit plans and stock options than between defined contribution plans and stock options.

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