The Design of Defined Contribution Plans / Vivek Bhattacharya, Gastón Illanes.

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Bhattacharya, Vivek

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w29981.Publication details: Cambridge, Mass. National Bureau of Economic Research 2022.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Defined contribution (DC) plans are a major vehicle for retirement savings in the US, holding almost $10 trillion in assets under management. In recent years, the quality and availability of these plans has been the subject of active policy attention and of several major lawsuits. This paper studies how employers and plan providers (recordkeepers) design these plans. We argue that low plan quality and limited provision can come from two sources. First, employer willingness to pay may be misaligned with that of workers or of regulators. Second, the market for recordkeeping may be imperfectly competitive. We propose a model of plan design and estimate that while both frictions are at play, significant changes to plan quality require modifying employer preferences. Accordingly, we evaluate proposed policies and conclude that only direct quality regulation can lead to significant quality improvements. Recent proposals can increase plan provision but have negligible quality effects.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w29981 (Browse shelf(Opens below))	Not For Loan

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April 2022.

Defined contribution (DC) plans are a major vehicle for retirement savings in the US, holding almost $10 trillion in assets under management. In recent years, the quality and availability of these plans has been the subject of active policy attention and of several major lawsuits. This paper studies how employers and plan providers (recordkeepers) design these plans. We argue that low plan quality and limited provision can come from two sources. First, employer willingness to pay may be misaligned with that of workers or of regulators. Second, the market for recordkeeping may be imperfectly competitive. We propose a model of plan design and estimate that while both frictions are at play, significant changes to plan quality require modifying employer preferences. Accordingly, we evaluate proposed policies and conclude that only direct quality regulation can lead to significant quality improvements. Recent proposals can increase plan provision but have negligible quality effects.