Behavioral Economics Policy Impact and Future Directions (2023) / Chapter Skim
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6 Retirement Benefits
6 Retirement Benefits
Pages 117-126
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From page 117... ...
. The failure to save adequately for retirement has been ascribed to many of the behavioral factors discussed in Chapter 3, particularly limited attention, cognitive barriers, present bias, and inaccurate beliefs.
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From page 118... ...
employers who offer retirement benefits have moved from defined benefit plans to defined contribution plans. Under a defined benefit plan, a company or firm combines funds deducted from employee paychecks with company-contributed funds in an account that can grow and eventually pay a specific dollar amount per month or year to retired employees.
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From page 119... ...
In addition, like many behaviorally inspired interventions, default approaches are quite inexpensive to implement, making them a particularly attractive policy option. This research attracted significant public attention that led to provisions in the landmark Pension Protection Act of 2006, which formally allowed employers to change the default in their tax-preferred pension plans, codified the rules regarding the required characteristics of default plans to qualify for favorable tax treatment, provided employer protection
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From page 120... ...
Additional legislation in December 2022 extended automatic enrollment to a wider set of employers; relaxed the penalties for one-time emergency withdrawals; and, in a provision that particularly highlights behavioral economics, allowed employers to offer workers a "small gift" to enroll in their company's plan. Automatic enrollment has been described as "the most successful contribution of so-called behavioral economics to public policy" (Porter, 2016)
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From page 121... ...
A second issue is that people sometimes want to withdraw funds from a retirement plan for immediate consumption needs, despite the typically high penalties for early withdrawal. This is especially a concern with lowincome earners who accept the default plan, with its minimum required contributions, but may later need cash to deal with temporary reductions in income or increases in expenses.
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From page 122... ...
. The authors found that employers can increase contribution rates by using behaviorally based design features that lead employees to choose "personalized plan options" -- that is, options that are tailored to an individual's specific financial circumstances -- instead of defaults.
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From page 123... ...
• Other characteristics of plans, including framing, wording, and visuals, have also been shown to affect workers' choice of plan and have the potential to at least modestly increase retirement assets. To build on the success that has already been achieved in boosting retirement savings, it will be useful to have additional evidence on behaviorally based tools for increasing saving to levels that will better meet people's actual retirement needs.
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From page 124... ...
. The effect of providing peer information on retirement savings decisions.
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From page 125... ...
. Adding automatic emergency savings to retirement savings plans.
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