Who chooses defined contribution plans?
By: Jeffrey R. Brown, Scott J. Weisbenner.
Contributors: Weisbenner, Scott J.; Brown, Jeffrey R.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 12842; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 12842.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "This paper provides new evidence on what types of individuals are most likely to choose a defined contribution (DC) plan over a defined benefit (DB) plan.  Making use of administrative data from the State Universities Retirement System (SURS) of Illinois, we study the decisions of nearly 50,000 new employees who make a one-time, irrevocable choice between a traditional DB plan, a portable DB plan, and an entirely self-managed DC plan.  Because the SURS-covered earnings of these employees are not covered under the Social Security system, their choices provides insight into the DB vs.  DC preferences of individuals with regard to a primary source of their retirement income.  We find that a majority of participants fail to make an active decision and are thus defaulted into the traditional DB plan after 6 months.  We also find that those individuals who are most likely to be financially sophisticated are most likely to choose the self-managed DC plan, despite the fact that, given plan parameters, the DC plan is inferior to the portable DB plan under reasonable assumptions about future financial market returns.  We discuss both rational and behavioral reasons that might explain this finding"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 3/23/2007.

Includes bibliographical references.

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