Why do individuals choose defined contribution plans? Evidence from participants in a large public plan

• 成果类型: Article; Proceedings Paper
• 署名作者: Brown, Jeffrey R.; Weisbenner, Scott J.
• 署名单位: University of Illinois System; University of Illinois Urbana-Champaign; National Bureau of Economic Research
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2013.05.004
• 发表日期: 2014
• 页码: 35-46
• 关键词: Retirement; public pensions; Defined benefit; Defined contribution; financial literacy; POLITICAL RISK

摘要

We examine individual choices between a defined contribution (DC) and a defined benefit (DB) retirement plan at a large public employer. We find sensible patterns with regard to standard economic and demographic factors: the probability of choosing the DC plan decreases with the relative financial generosity of the DB plans versus the DC plan and rises with education and income. Using a survey of participants, we find that the ability to control for beliefs, preferences, and other variables not easily obtainable from administrative or standard household surveys increases the explanatory power over seven-fold. Among the important factors in the DB/DC pension choice are respondent attitudes about risk/return tradeoffs, financial literacy, return expectations, and political risk. We also find that individuals make sensible choices based on what they believe to be true about the plans, but that these beliefs about plan parameters are often wrong, thus leading to possibly sub-optimal decisions. Finally, we provide evidence that individuals' preferences over plan attributes (e.g., the degree of control provided) are even more important determinants of the DB/DC decision than expected outcomes (e.g., the relative generosity of the plans). (C) 2013 Elsevier B.V. All rights reserved.