Pensions and benefits.

• Author: Choi, James J.
• Position: From the Library - Excerpt from Tax Policy and the Economy - Brief Article - Excerpt

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

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

Tax Policy and the Economy, Volume 16, pp. 67-113.

This all-star team of academic researchers portrays a vision of retirement that is both frightening and reassuring: frightening because employees in defined contribution plans are prone to costly errors and inaction that in all likelihood will lead to either delayed retirement or a relatively poor retirement, and reassuring because it shows how employers can redesign such plans to actually benefit their employees. The crux of the matter is that employees are passive decision makers for all kinds of investment decisions that must be made in a defined contribution plan. These decisions include whether and when to enroll in the plan, how much to contribute, what kinds of investment...