Working Paper: NBER ID: w13275
Authors: David Card; Michael Ransom
Abstract: In this paper we document the importance of framing effects in the retirement savings decisions of college professors. Pensions in many post-secondary institutions are funded by a combination of an employer contribution and a mandatory employee contribution. Employees can also make tax-deferred contributions to a supplemental savings account. A standard lifecycle savings model predicts a "dollar-for-dollar" tradeoff between supplemental savings and the combined regular pension contributions made on behalf of an employee. Contrary to this prediction, we estimate that each additional dollar of employee contributions leads to a 70 cent reduction in supplemental savings, whereas each dollar of employer contributions generates only a 30 cent reduction. The asymmetry - which is consistent with different "mental accounts" for employer and employee contributions - provides further evidence of the sensitivity of individual savings decisions to the precise details of their pension plan.
Keywords: pension plans; employee savings; framing effects; retirement behavior
JEL Codes: D91; G23; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Employee contributions (J32) | Supplemental savings (D14) |
| Employer contributions (J32) | Supplemental savings (D14) |
| Framing effects (D91) | Employee contributions (J32) |
| Framing effects (D91) | Employer contributions (J32) |
| Employee contributions (J32) | Mental accounting (G41) |
| Mental accounting (G41) | Supplemental savings (D14) |