Working Paper: NBER ID: w21665
Authors: Itzik Fadlon; Jessica A. Laird; Torben Heien Nielsen
Abstract: This paper studies how firms set contributions to employer-provided 401(k)-type pension plans. Using a reform that decreased the subsidy for contributions to capital pension accounts for Danish workers in the top income tax bracket, we provide strong evidence that employers' contributions are based on their employees' savings preferences. We find an immediate decrease in employer contributions to capital accounts, whose magnitude increased in the share of employees directly affected by the reform. This response was large relative to average employee responses within private IRA-type plans and was accompanied by a similar-magnitude shift of employer contributions to annuity accounts.
Keywords: Pension Contributions; Employee Preferences; Retirement Savings; Denmark
JEL Codes: J30; J32; J33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Danish retirement savings reform (J26) | decrease in employer contributions to capital pension accounts (J32) |
| Danish retirement savings reform (J26) | increase in contributions to annuity accounts (G23) |
| decrease in employer contributions to capital pension accounts (J32) | increase in contributions to annuity accounts (G23) |
| Danish retirement savings reform (J26) | higher decrease in contributions in firms with higher share of affected employees (H32) |