Do Employer Pension Contributions Reflect Employee Preferences? Evidence from a Retirement Savings Reform in Denmark

Itzik Fadlon; Jessica Laird; Torben Heien Nielsen

doi:10.1257/app.20150015

Do Employer Pension Contributions Reflect Employee Preferences? Evidence from a Retirement Savings Reform in Denmark

Itzik Fadlon, Jessica Laird, Torben Heien Nielsen

4 Citationer (Scopus)

Abstract

This paper studies how firms set contributions to employer provided 401(k)-type pension plans. Using a reform that decreased the subsidy to 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.

Originalsprog	Engelsk
Tidsskrift	American Economic Journal: Applied Economics
Vol/bind	8
Udgave nummer	3
Sider (fra-til)	196-216
Antal sider	21
ISSN	1945-7782
DOI	https://doi.org/10.1257/app.20150015
Status	Udgivet - jul. 2016

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abstract = "This paper studies how firms set contributions to employer provided 401(k)-type pension plans. Using a reform that decreased the subsidy to 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.",

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AB - This paper studies how firms set contributions to employer provided 401(k)-type pension plans. Using a reform that decreased the subsidy to 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.

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Do Employer Pension Contributions Reflect Employee Preferences? Evidence from a Retirement Savings Reform in Denmark

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