Life-cycle patterns in the design and adoption of default funds in DC pension plans

Inkmann, Joachim; Shi, Zhen

doi:10.1017/s1474747214000511

Cited by 4 publications

(2 citation statements)

References 77 publications

(112 reference statements)

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“…These results, taken together, partially reinforce the evidence provided by the literature that automatic enrollment increases participation in pension plans (Benartzi & Thaler, 2007;Choi, Laibson, Madrian, & Metrick, 2004;Clark & Pelletier, 2019;Madrian & Shea, 2001), and that individuals prefer risk-free plans to riskier plans (Hey, 2008). But this result is slightly different from Inkmann & Shi's (2016), who found a negative relationship between age and risky assets, in a DC default plan. Research findings can be relevant for the design of public policies for private pension plans, by suggesting that compulsory enrollment can be a default in plans offered by employers.…”

Section: Discussioncontrasting

confidence: 90%

Automatic enrollment and employer match: an experiment with the choice of pension plans

Pereira

Afonso

2020

REGE

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PurposeThe purpose of this study is to identify arrangements of fully funded defined contribution (FF-DC) pension plans associated with the continuity of retirement savings.Design/methodology/approachThe authors adopted an experimental design composed of a control group and two treatment groups. In all groups, individuals made decisions throughout nine periods: five during the working period and four at the postretirement stage. The authors asked participants if they wanted to join a pension plan, and which plan. The authors offered three plans with different risk profiles: plan 1 (high risk), plan 2 (moderate) and plan 3 (low risk) and one risk-free plan, plan 4. In treatment groups 1 and 2, there was an automatic enrollment of the participants in the default plan (moderate risk), and in the following periods they had to decide whether to continue contributing, and in this case, to which plan, with a defined percentage.FindingsIn treatment scenarios, participants chose the riskiest plan in all periods of the experiment, and most of them chose the risk-free plan in period 5. These findings suggest that pension plans with automatic enrollment, employer matching and low risk foster the continuation of retirement savings.Research limitations/implicationsThe research has as limitation the fact that the sample is not representative of the population and therefore does not allow generalizations. This is because the authors use social media ads to prospect respondents.Practical implicationsThe research's findings can be relevant for the design of public policies for private pension plans, suggesting that compulsory automatic enrollment can be used as default in plans offered by the employers. The results encourage the inclusion of behavioral elements in the design of the pension system, paying attention to the nudges. In this sense, it is possible to increase participation in the pension plan and develop low cost programs to increase the amount accumulated by people before retirement.Social implicationsDecision-making architecture, such as automatic enrollment, can improve individuals' retirement decisions, affecting savings and welfare in the long run.Originality/valueAlthough the effect of pension plan designs is widely studied in other countries, such as the United States and United Kingdom, the authors are unaware of a national empirical research that seeks to understand how different arrangements affect an individual choice through an experiment.

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Section: Discussioncontrasting

confidence: 90%

Automatic enrollment and employer match: an experiment with the choice of pension plans

Pereira

Afonso

2020

REGE

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“…As a result of the marked risks connected with the incomplete financial markets, defined benefit pension liabilities is not usually fully hedgeable because a full hedging could lead to unbearable costs. We observe in Sundaresan & Zapatero (1997);Inkmann, Blake & Shi (2017), that the adoption of mortality rate in measuring valuation is a critical variable when computing replacement ratio of future funds. The estimation of liabilities already received necessitates accumulation as opposed to pension system which addresses discounting a stream of promised future benefits cash flows to the present with the goal of computations associated with the valuation exercise.…”

Section: Review Of Literaturementioning

confidence: 99%

A Comparative Study of Immediate Annuities and Ordinary Annuities in establishing the Phantom of Zero Liability Under the Trusteeship Pension Valuation Structure

Michael

Oluseyi

2023

J. Bus. Mgt.

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Background: The liabilities of a pension scheme define the financial value to be paid at a definite period in the future. The underlying goal of pension plans is to provide retirees with sufficient stream of income to enable them to live a decent financially independent life post-employment period. The regulatory framework for occupational pension schemes necessitates the services of trustees as administrators who assume legal administrative responsibilities on the scheme and saddled to oversee actuarial valuations of the scheme's liabilities at definite points in time. Objectives: The objective of this paper is (i) to empirically examine the drivers of pension liability and how they are evaluated by the trustee’s model. (ii) Specifically, the study intends to use input parameters of the trustee model to establish the conditions for which the value of liability is zero under trusteeship annuity factor. Methods: This study applies trustees’ valuation model, the present values together with infinitesimal calculus. Salary data as well as demographic data were obtained from an agricultural production services company located in Jos-South, Nigeria. Results: Computational evidence from our results proves that the total service liability under the conditions of the current model is vanishingly zero. However, when the annuity factor is replaced by life table annuity, the service liability does not vanish. Conclusion: The total service liability obtained as zero therefore initiates inquiry as to whether this current valuation framework causes potential uncertainties for the pension trustees who are responsibly saddled with both administration and core decision-making responsibilities of the system.

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Inkmann

2024

Journal of Empirical Finance

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Life-cycle patterns in the design and adoption of default funds in DC pension plans

Cited by 4 publications

References 77 publications

Automatic enrollment and employer match: an experiment with the choice of pension plans

Automatic enrollment and employer match: an experiment with the choice of pension plans

A Comparative Study of Immediate Annuities and Ordinary Annuities in establishing the Phantom of Zero Liability Under the Trusteeship Pension Valuation Structure

Aggregate portfolio choice

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