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Olivia S Mitchell - One of the best experts on this subject based on the ideXlab platform.

  • simplifying choices in defined contribution Retirement Plan design a case study
    Journal of Pension Economics & Finance, 2017
    Co-Authors: Donald B Keim, Olivia S Mitchell
    Abstract:

    The growth and popularity of defined contribution pensions, along with the government's increasing attention to Retirement Plan costs and investment choices provided, make it important to understand how people select their Retirement Plan investments. This paper shows how employees in a large firm altered their fund allocations when the employer streamlined its pension fund menu and deleted nearly half of the offered funds. Using administrative data, we examine the changes in Plan participant investment choices that resulted from the streamlining and how these changes might affect participants’ eventual Retirement wellbeing. We show that streamlined participants’ new allocations exhibited significantly lower within-fund turnover rates and expense ratios, and we estimate this could lead to aggregate savings for these participants over a 20-year period of 9,400 per participant. Moreover, after the reform, streamlined participants’ portfolios held significantly less equity and exhibited significantly lower risks by way of reduced exposures to most systematic risk factors, compared with their non-streamlined counterparts.

  • simplifying choices in defined contribution Retirement Plan design a case study
    Journal of Pension Economics & Finance, 2017
    Co-Authors: Donald B Keim, Olivia S Mitchell
    Abstract:

    The growth and popularity of defined contribution pensions, along with the government's increasing attention to Retirement Plan costs and investment choices provided, make it important to understand how people select their Retirement Plan investments. This paper shows how employees in a large firm altered their fund allocations when the employer streamlined its pension fund menu and deleted nearly half of the offered funds. Using administrative data, we examine the changes in Plan participant investment choices that resulted from the streamlining and how these changes might affect participants' eventual Retirement wellbeing. We show that streamlined participants' new allocations exhibited significantly lower within-fund turnover rates and expense ratios, and we estimate this could lead to aggregate savings for these participants over a 20-year period of $20.2M, or in excess of $9,400 per participant. Moreover, after the reform, streamlined participants' portfolios held significantly less equity and exhibited significantly lower risks by way of reduced exposures to most systematic risk factors, compared to their non-streamlined counterparts.

  • employee financial literacy and Retirement Plan behavior a case study
    Economic Inquiry, 2017
    Co-Authors: Robert L Clark, Annamaria Lusardi, Olivia S Mitchell
    Abstract:

    This article uses administrative data on all active employees of the Federal Reserve (FR) System to examine participation in and contributions to the Thrift Saving Plan, the System's defined contribution (DC) Plan. We link to administrative records a unique employee survey of economic/demographic factors including a set of financial literacy questions. Not surprisingly, FR employees are substantially more financially literate than the population at large. Most importantly, financially savvy employees are also most likely to participate in their DC Plan. Sophisticated workers contribute three percentage points more of their earnings to the DC Plan than do the less knowledgeable, and they hold more equity in their pension accounts. We examine changes in employee Plan behavior 1 year after employees completed a Learning Module about Retirement Planning, and we compare it to baseline patterns. We find that those employees who completed the Learning Module were more likely to start contributing and less likely to have stopped contributing to the DC Plan postsurvey. In sum, employer-provided learning programs are shown to significantly impact employee Retirement saving decisions and consistent with a lot of other research, higher levels of financial literacy are found to have a beneficial impact on Retirement saving patterns. (JEL J3, H7)

  • financial decision making and Retirement security in an aging world
    2017
    Co-Authors: Olivia S Mitchell, Brett P Hammond, Stephen P Utkus
    Abstract:

    As the world's population lives longer, it will become increasingly important for Plan sponsors, Retirement advisors, regulators, and financial firms to focus closely on how older persons fare in the face of rising difficulties with cognition and financial management. This book offers state-of-the-art research and recommendations on how to evaluate when older persons need financial advice, help them make better financial decisions, and to identify policy options for handling these individual and social challenges efficiently and fairly. This latest volume in the Pension Research Council series, draws lessons from theory and practice, and will be of interest to employees and retirees, consumers and researchers, and financial institutions working to design better Retirement Plan offerings. Contributors to this volume - Wandi Bruine de Bruin holds a University Leadership Chair in Behavioural Decision Making at the Leeds University Business School Gordon L. Clark is Professor and Director of the Smith School of Enterprise and Environment at Oxford University Robert Clark is Stephen Zelnak Professor of Economics and Professor of Management, Innovation and Entrepreneurship in the Poole College of Management Janet Cowell is North Carolina's popularly-elected Treasurer Martha Deevy is a Senior Research Scholar and Director of the Financial Security Division at the Stanford Center on Longevity Maurizio Fiaschetti is Lecturer in Banking and Finance at the School of Oriental and African Studies Raquel Fonseca is an Associate Professor at Universite du Quebec a Montreal Keith Jacks Gamble is an Assistant Professor of Finance at DePaul University P. Brett Hammond is Research Leader at the American Funds for Capital Group Cynthia Hutchins is the Director of Financial Gerontology for Bank of America Merrill Lynch Arie Kapteyn is a Professor of Economics and the Executive Director of the Dornsife College of Letters, Arts and Sciences Center for Economic and Social Research at the University of Southern California Christine N. Kieffer is Senior Director of the FINRA Investor Education Foundation Hugh Hoikwang Kim is an Assistant Professor of Finance in the Department of Finance at the University of South Carolina Surya Kolluri manages Policy and Market Planning for the Merrill Lynch BAC-ML Global Wealth and Retirement Solutions Business Raimond Maurer is the Chair of Investment, Portfolio Management, and Pension Finance at the Finance Department of Goethe University Frankfurt Olivia S. Mitchell is the International Foundation of Employee Benefit Plans Professor, as well as Professor of Insurance/Risk Management and Business Economics/ Policy; Executive Director of the Pension Research Council; and Director of the Boettner Center for Pensions and Retirement Research, all at the Wharton School of the University of Pennsylvania Gary R. Mottola is Research Director of the FINRA Investor Education Foundation Peter Tufano is the Peter Moores Dean and Professor of Finance at the University of Oxford's Said Business School Stephen P. Utkus is Principal and Director of the Vanguard Center for Retirement Research Gema Zamarro is an Associate Professor and holds the 21st Century Endowed Chair in Teacher Quality at the Department of Education Reform at the University of Arkansas

  • simplifying choices in defined contribution Retirement Plan design
    National Bureau of Economic Research, 2015
    Co-Authors: Donald B Keim, Olivia S Mitchell
    Abstract:

    In view of the growth and popularity of defined contribution pensions, along with the government’s growing attention to Retirement Plan costs and investment choices provided, it is important to understand how people select their Retirement Plan investments. This paper shows how employees in a large firm altered their fund allocations when the employer streamlined its pension fund menu and deleted nearly half of the offered funds. Using administrative data, we examine the changes in Plan participant investment choices that resulted from the streamlining and how these changes might affect participants’ eventual Retirement wellbeing. We show that streamlined participants’ new allocations exhibited significantly lower within-fund turnover rates and expense ratios, and we estimate this could lead to aggregate savings for these participants over a 20-year period of $20.2M, or in excess of $9,400 per participant. Moreover, after the reform, streamlined participants’ portfolios held significantly less equity and exhibited significantly lower risks by way of reduced exposures to most systematic risk factors, compared to their non-streamlined counterparts.

Jack Vanderhei - One of the best experts on this subject based on the ideXlab platform.

  • the 2016 Retirement confidence survey worker confidence stable retiree confidence continues to increase
    EBRI issue brief Employee Benefit Research Institute, 2016
    Co-Authors: Ruth Helman, Craig Copeland, Jack Vanderhei
    Abstract:

    A T A G L A N C E The 26 wave of the Retirement Confidence Survey (RCS), the longest-running survey of its kind in the nation, finds that American workers’ confidence in their ability to afford a comfortable Retirement has maintained its increase after the record lows experienced between 2009 and 2013. However, retiree confidence in their ability to afford a comfortable Retirement continued to increase in 2016. 1 While workers and/or their spouses who have a Retirement Plan have much larger savings and are also more likely to have taken steps to prepare for Retirement, in the aggregate, only a minority of all workers appear to be taking basic steps needed to prepare for Retirement.

  • the 2016 Retirement confidence survey worker confidence stable retiree confidence continues to increase
    2016
    Co-Authors: Ruth Helman, Craig Copeland, Jack Vanderhei
    Abstract:

    This paper presents key findings from the 26th annual Retirement Confidence Survey (RCS), a survey that gauges the views and attitudes of working-age and retired Americans regarding Retirement, their preparations for Retirement, their confidence with regard to various aspects of Retirement, and related issues. The 2016 RCS by EBRI/Greenwald & Associates finds that the percentage of workers very confident about having enough money for a comfortable Retirement, at record lows between 2009 and 2013, increased from 13 percent in 2013 to 22 percent in 2015, and, in 2016 has leveled off at 21 percent. The percentage of workers somewhat confident increased from 36 percent in 2015 to 42 percent in 2016, while the percentage not at all confident decreased from 24 percent in 2015 to 19 percent in 2016. This move out of the not-at-all-confident group is observed primarily among those reporting they or their spouses do not have a Retirement Plan (defined benefit, defined contribution, or individual Retirement account). Retiree confidence in having enough money for a comfortable Retirement, which historically tends to exceed worker confidence levels, continued to increase in 2016 reaching 39 percent who are very confident (up from 18 percent in 2013). The percentage not at all confident was 12 percent (statistically unchanged from 14 percent in 2013). Worker confidence in the affordability of various aspects of Retirement continued its increase in 2016. In particular, the percentage of workers who are very confident in their ability to pay for basic expenses increased (43 percent in 2016, up from 25 percent in 2013 and 37 percent in 2015). The percentages of workers who are very confident in their ability to pay for medical expenses (22 percent, up from 14 percent in 2013) and long-term care expenses (16 percent, up from 11 percent in 2013) are slowly inching upward. Sixty-nine percent of workers report they or their spouses have saved for Retirement (statistically equivalent to 67 percent in 2015). Still, a sizable percentage of workers report they have virtually no savings and investments. Among RCS workers providing this type of information, 26 percent say they have less than $1,000, though those who indicate they and their spouse do not have a Retirement Plan -- a defined benefit (DB), defined contribution (DC), or individual Retirement account (IRA) -- are far more likely than those who have a Plan to report this low level of savings (67 percent vs. 9 percent) and far less likely to report having saved at least $100,000 (5 percent vs. 34 percent). Retirees are more likely than workers to describe their level of debt as not a problem.

  • capping tax preferred Retirement contributions preliminary evidence of the impact of the national commission on fiscal responsibility and reform recommendations
    Social Science Research Network, 2011
    Co-Authors: Jack Vanderhei
    Abstract:

    In December 2010, the National Commission on Fiscal Responsibility and Reform released their long-awaited document on federal debt reduction, “The Moment of Truth.” Although their guiding principles and values (pages 13-14) specifically mention the need to keep America sound over the long run by implementing “policies today to ensure that future generations have Retirement security, affordable health care, and financial freedom,” the document puts forth a tax reform Plan that would modify Retirement Plans by capping annual “tax-preferred contributions to [the] lower of $20,000 or 20% of income” (page 31). This is often referred to as the “20/20 cap.” Even if one were to ignore the potential interaction of the proposed limitations with the present values of accruals under defined benefit Plans and/or the existing tax preferences available to some individual Retirement account (IRA) contributions, this alternative formulation of capping tax-preferred contributions would substantially reduce the current limits available under qualified defined contribution (401(k)-type) Plans. Currently, the combination of employee and employer contributions is the lesser of a dollar limit of at least $49,000 per year and a percentage limit of 100 percent of an employee’s compensation. This paper provides preliminary evidence of the impact of these “20/20 caps” on projected Retirement accumulations under a set of assumptions explained in detail. New results from EBRI’s Retirement Security Projection Model™ (RSPM) show that the highest-income quartile within each age cohort would see the largest average percentage reduction in projected balances at Retirement. However, for each age cohort other than the oldest one, the lowest-income quartile would see the second-highest average percentage reductions. Phrased another way, the proposed cap would, as expected, most affect the highest-income workers; but it also would cause a very big reduction in projected Retirement accumulations for the lowest-income workers. While the results presented in this paper provide a first approximation of the potential impact of these constraints on workers, as well as the distribution of the impact by income, they do not tell the entire story. A follow-up study will also explore the likely impact of these constraints on Retirement Plan sponsor behavior and estimate the extent to which fewer employers would be willing to offer qualified defined contribution Plans (especially among Plans offered by small employers). The PDF for the above title, published in the July 2011 issue of EBRI Notes, also contains the fulltext of another July 2011 EBRI Notes article abstracted on SSRN: “The Impact of the Recession on Employment-Based Health Benefits: The Case of Union Membership.”

  • the impact of automatic enrollment in 401 k Plans on future Retirement accumulations a simulation study based on Plan design modifications of large Plan sponsors
    EBRI issue brief Employee Benefit Research Institute, 2010
    Co-Authors: Jack Vanderhei
    Abstract:

    Automatic enrollment of participants in 401(k) Plans, which was encouraged by provisions in the Pension Protection Act of 2006, is designed to overcome the drawbacks of voluntary enrollment by getting more workers to save in their work place Retirement Plan. Auto-enrollment for 401(k) Plans has been demonstrated by previous EBRI research to have substantial potential benefits for some employees. This EBRI paper analyzes Plan-specific data of 1,000 large defined contribution Plans for salaried employees from Benefit SpecSelect™ (Hewitt Associates LLC) in 2005 and 2009 to compare a subsample of Plan sponsors that did not have auto-enrollment in 2005 but that had adopted it in 2009. Actual Plan information on both actual auto-enrollment and actual match rate information were coded both before and after adoption of auto-enrollment from 225 large 401(k) Plan sponsors and found that the average change was positive under auto-enrollment in each of the following three categories: the first-tier match rate; the effective match rate; and the average total employer contribution rate. This analysis created a series of simulation programs using these data. The analysis indicates that the adoption of automatic enrollment in 401(k) Plans is likely to have a very significant positive impact (even greater than EBRI projected in 2008) in generating additional Retirement savings for many workers, especially for young and low-income workers. Under baseline assumptions, the median 401(k) accumulations for the lowest-income quartile of workers currently age 25-29 (assuming all 401(k) Plans were voluntary enrollment Plans as typified by the 225 large Plan sponsors described above) would only be 0.08 times final earnings at age 65. However, if all 401(k) Plans are assumed to be using the large Plan sponsor auto-enrollment provisions, the median 401(k) accumulations for the lowest-income quartile jumps to 4.96 times final earnings (if 401(k) participants revert back to the default contribution when they change jobs) and 5.33 times final earnings (if they retain their previous contribution level when they change jobs). There are also large increases even for high-income workers: The multiple under a voluntary enrollment scenario is 2.41 times final earnings compared with 9.15 or 9.81 under auto-enrollment, depending on the assumptions for employee reversion to default contribution rates upon job change. Future EBRI research will examine the extent to which the increased 401(k) generosity resulted from modifications to defined benefit Plans as pension Plans were closed or frozen.

  • 401 k Plan asset allocation account balances and loan activity in 2008
    Social Science Research Network, 2009
    Co-Authors: Jack Vanderhei, Sarah Holden, Luis Alonso
    Abstract:

    Over the past two decades, 401(k) Plans have grown to be the most widespread private-sector employer-sponsored Retirement Plan in the United States, and now serve as the most popular defined contribution (DC) Plan, representing the largest number of participants and assets. In 2008, 49.8 million American workers were active 401(k) Plan participants. By year-end 2008, 401(k) Plan assets had grown to represent 16 percent of all Retirement assets, amounting to $2.3 trillion. In an ongoing collaborative effort, the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) collect annual data on millions of 401(k) Plan participants as a means to accurately portray how these participants manage their accounts. This paper is an update of EBRI and ICI’s ongoing research into 401(k) Plan participants’ activity through year-end 2008. The report is divided into five sections: The first describes the EBRI/ICI 401(k) database; the second focuses on changes in participant account balances over time, analyzing a group of consistent 401(k) participants; the third presents a snapshot of participant account balances at year-end 2008; the fourth looks at participants’ asset allocations, including analysis of 401(k) participants’ use of lifecycle, or target-date, funds; and the fifth focuses on participants’ 401(k) loan activity. Looking at consistent participants in the EBRI/ICI 401(k) database over the five-year period from 2003 to 2008 (which included one of the worst bear markets for stocks since the Great Depression), the study found: After rising in 2003 and for the next four consecutive years, the average 401(k) Retirement account fell 24.3 percent in 2008; the average 401(k) account balance moved up and down with stock market performance, but over the entire five-year time period increased at an average annual growth rate of 7.2 percent, attaining $86,513 at year-end 2008; the median (mid-point) 401(k) account balance increased at an average annual growth rate of 11.4 percent over the 2003-2008 period to $43,700 at year-end 2008. The study also found: The bulk of 401(k) assets continued to be invested in stocks; three-quarters of 401(k) Plans included lifecycle funds in their investment lineup at year-end 2008; new employees continued to use balanced funds, including lifecycle funds; 401(k) participants continued to seek diversification of their investments; and participants’ 401(k) loan activity was stable.

South Carolina Public Employee Benefit Authority - One of the best experts on this subject based on the ideXlab platform.

Craig Copeland - One of the best experts on this subject based on the ideXlab platform.

  • the 2016 Retirement confidence survey worker confidence stable retiree confidence continues to increase
    EBRI issue brief Employee Benefit Research Institute, 2016
    Co-Authors: Ruth Helman, Craig Copeland, Jack Vanderhei
    Abstract:

    A T A G L A N C E The 26 wave of the Retirement Confidence Survey (RCS), the longest-running survey of its kind in the nation, finds that American workers’ confidence in their ability to afford a comfortable Retirement has maintained its increase after the record lows experienced between 2009 and 2013. However, retiree confidence in their ability to afford a comfortable Retirement continued to increase in 2016. 1 While workers and/or their spouses who have a Retirement Plan have much larger savings and are also more likely to have taken steps to prepare for Retirement, in the aggregate, only a minority of all workers appear to be taking basic steps needed to prepare for Retirement.

  • the 2016 Retirement confidence survey worker confidence stable retiree confidence continues to increase
    2016
    Co-Authors: Ruth Helman, Craig Copeland, Jack Vanderhei
    Abstract:

    This paper presents key findings from the 26th annual Retirement Confidence Survey (RCS), a survey that gauges the views and attitudes of working-age and retired Americans regarding Retirement, their preparations for Retirement, their confidence with regard to various aspects of Retirement, and related issues. The 2016 RCS by EBRI/Greenwald & Associates finds that the percentage of workers very confident about having enough money for a comfortable Retirement, at record lows between 2009 and 2013, increased from 13 percent in 2013 to 22 percent in 2015, and, in 2016 has leveled off at 21 percent. The percentage of workers somewhat confident increased from 36 percent in 2015 to 42 percent in 2016, while the percentage not at all confident decreased from 24 percent in 2015 to 19 percent in 2016. This move out of the not-at-all-confident group is observed primarily among those reporting they or their spouses do not have a Retirement Plan (defined benefit, defined contribution, or individual Retirement account). Retiree confidence in having enough money for a comfortable Retirement, which historically tends to exceed worker confidence levels, continued to increase in 2016 reaching 39 percent who are very confident (up from 18 percent in 2013). The percentage not at all confident was 12 percent (statistically unchanged from 14 percent in 2013). Worker confidence in the affordability of various aspects of Retirement continued its increase in 2016. In particular, the percentage of workers who are very confident in their ability to pay for basic expenses increased (43 percent in 2016, up from 25 percent in 2013 and 37 percent in 2015). The percentages of workers who are very confident in their ability to pay for medical expenses (22 percent, up from 14 percent in 2013) and long-term care expenses (16 percent, up from 11 percent in 2013) are slowly inching upward. Sixty-nine percent of workers report they or their spouses have saved for Retirement (statistically equivalent to 67 percent in 2015). Still, a sizable percentage of workers report they have virtually no savings and investments. Among RCS workers providing this type of information, 26 percent say they have less than $1,000, though those who indicate they and their spouse do not have a Retirement Plan -- a defined benefit (DB), defined contribution (DC), or individual Retirement account (IRA) -- are far more likely than those who have a Plan to report this low level of savings (67 percent vs. 9 percent) and far less likely to report having saved at least $100,000 (5 percent vs. 34 percent). Retirees are more likely than workers to describe their level of debt as not a problem.

  • 401 k Plan asset allocation account balances and loan activity in 2007
    Social Science Research Network, 2008
    Co-Authors: Jack Vanderhei, Sarah Holden, Luis Alonso, Craig Copeland
    Abstract:

    Over the past two decades, 401(k) Plans have grown to be the most widespread private-sector employer-sponsored Retirement Plan in the United States, and now serve as the most popular defined contribution (DC) Plan, representing the largest number of participants and assets. In 2007, 48.5 million American workers were active 401(k) Plan participants. By year-end 2007, 401(k) Plan assets had grown to represent 17 percent of all Retirement assets, with $3.0 trillion in assets. In an ongoing collaborative effort, the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) collect annual data on millions of 401(k) Plan participants as a means to accurately portray how these participants manage their accounts. This paper serves as an update of EBRI and ICI's ongoing research into 401(k) Plan participants' activity through year-end 2007. The report is divided into four sections: The first describes the EBRI/ICI 401(k) database; the second presents a snapshot of participant account balances at year-end 2007; the third looks at participants' asset allocations, including a new analysis of 401(k) participants' use of lifecycle funds; the fourth focuses on participants' 401(k) loan activity. As with previous EBRI/ICI updates, analysis of a consistent sample of 401(k) participants (those that have been in the same Plan since 1999) is Planned; this additional analysis is expected to be published early in 2009. It should be noted that the year-end 2007 401(k) data reported in this analysis, by definition, do not reflect market losses or participant account activity in 2008. The impact of the 2008 financial market performance on average 401(k) balances is strongly affected by age and tenure of the individual participant, and it would be inaccurate to make a single estimate of an average 401(k) account outcome for 2008.

  • Retirement Plan participation and retirees perception of their standard of living
    EBRI issue brief Employee Benefit Research Institute, 2006
    Co-Authors: Craig Copeland
    Abstract:

    This paper focuses on a critical factor in Retirement security: the presence of income or assets from an employment-based Retirement Plan. It is the third in a series of EBRI publications based on the Retirement and Pension Plan Coverage Topical Module of the 2001 Survey of Income and Program Participation (SIPP), which has a wealth of data on workers' participation in these Plans as well as the Plans' characteristics and features. This report examines SIPP's more detailed questions concerning workers' participation in employment-based and other Retirement Plans.

  • employment based Retirement and pension Plan participation geographic differences and trends
    EBRI issue brief Employee Benefit Research Institute, 2003
    Co-Authors: Craig Copeland
    Abstract:

    This Issue Brief examines the level of participation by workers in employment-based pension or Retirement Plans. Their participation is examined for 2001 across various worker characteristics and those of their employers. The report then examines Retirement Plan participation across U.S. geographic regions, including by state and certain consolidated metropolitan statistical areas (CMSAs). Participation trends from 1987 to 2001 are also presented.

Annamaria Lusardi - One of the best experts on this subject based on the ideXlab platform.

  • defined contribution Plans and the challenge of financial illiteracy
    2019
    Co-Authors: Jill E Fisch, Annamaria Lusardi, Andrea Hasler
    Abstract:

    Retirement investing in the United States has changed dramatically. The classic defined-benefit (DB) Plan has largely been replaced by the defined contribution (DC) Plan. With the latter, individual employees’ decisions about how much to save for Retirement and how to invest those savings determine the benefits available upon Retirement. We analyze data from the 2015 National Financial Capability Study to show that people whose only exposure to investment decisions is by virtue of their participation in an employer-sponsored 401(k) Plan are poorly equipped to make sound investment decisions. Specifically, they suffer from higher levels of financial illiteracy than other investors. This lack of financial literacy is critical both because of the financial consequences of poor financial decisions and because of a legal structure that relies on participant choice to limit the fiduciary obligations of the employer with respect to the structure and options provided by the Retirement Plan. In response to this concern, we propose mandated employer-provided financial education to address limited employee financial literacy. We identify and discuss three requirements that a financial education program should incorporate – a self-assessment, minimum substantive components, and timing. Formalizing the employer role in evaluating and increasing financial literacy among Plan participants is a key step in providing Retirement Plan participants with the resources necessary to manage important decisions regarding Retirement Planning and, ultimately, for enhancing the financial security of American workers.

  • employee financial literacy and Retirement Plan behavior a case study
    Economic Inquiry, 2017
    Co-Authors: Robert L Clark, Annamaria Lusardi, Olivia S Mitchell
    Abstract:

    This article uses administrative data on all active employees of the Federal Reserve (FR) System to examine participation in and contributions to the Thrift Saving Plan, the System's defined contribution (DC) Plan. We link to administrative records a unique employee survey of economic/demographic factors including a set of financial literacy questions. Not surprisingly, FR employees are substantially more financially literate than the population at large. Most importantly, financially savvy employees are also most likely to participate in their DC Plan. Sophisticated workers contribute three percentage points more of their earnings to the DC Plan than do the less knowledgeable, and they hold more equity in their pension accounts. We examine changes in employee Plan behavior 1 year after employees completed a Learning Module about Retirement Planning, and we compare it to baseline patterns. We find that those employees who completed the Learning Module were more likely to start contributing and less likely to have stopped contributing to the DC Plan postsurvey. In sum, employer-provided learning programs are shown to significantly impact employee Retirement saving decisions and consistent with a lot of other research, higher levels of financial literacy are found to have a beneficial impact on Retirement saving patterns. (JEL J3, H7)

  • employee financial literacy and Retirement Plan behavior a case study
    National Bureau of Economic Research, 2015
    Co-Authors: Robert L Clark, Annamaria Lusardi, Olivia S Mitchell
    Abstract:

    This paper uses administrative data on all active employees of the Federal Reserve System to examine participation in and contributions to the Thrift Saving Plan, the system’s defined contribution (DC) Plan. We have appended to the administrative records a unique employee survey of economic/demographic factors including a set of financial literacy questions. Not surprisingly, Federal Reserve employees are more financially literate than the general population; furthermore, the most financially savvy are also most likely to participate in and contribute the most to their Plan. Sophisticated workers contribute three percentage points more of their earnings to the DC Plan than do the less knowledgeable, and they hold more equity in their pension accounts. Finally, we examine changes in employee Plan behavior a year after the financial literacy survey and compare it to the baseline. We find that employees who completed an educational module were more likely to start contributing and less likely to have stopped contributing to the DC Plan post-survey.

  • financial literacy and Planning implications for Retirement wellbeing
    National Bureau of Economic Research, 2005
    Co-Authors: Annamaria Lusardi, Olivia S Mitchell
    Abstract:

    Evidence suggests only a minority of American households feels "confident" about Retirement saving adequacy. Little is known about why people fail to Plan for Retirement, and whether Planning and information costs might affect Retirement saving patterns. To better understand these issues, we devised and fielded a purpose-built module on Planning and financial literacy for the 2004 Health and Retirement Study (HRS). This module measures how workers make their saving decisions, how they collect the information for making these decisions, and whether they possess the financial literacy needed to make these decisions. Our analysis shows that financial illiteracy is widespread among older Americans: only half of the age 50+ respondents could correctly answer two simple questions regarding interest compounding and inflation, and only one-third understood these as well as stock market risk. Women, minorities, and those without a college degree were particularly at risk of displaying low financial knowledge. We also evaluate whether people tried to figure out how much they need to save for Retirement, whether they devised a Plan, and whether they succeeded at the Plan. In fact, these calculations prove to be difficult: fewer than one-third of our age 50+ respondents ever tried to devise a Retirement Plan, and only two-thirds of those who tried, actually claim to have succeeded. Overall, fewer than one - fifth of the respondents believed that they engaged in successful Retirement Planning. We also find that financial knowledge and Planning are clearly interrelated: those who displayed financial knowledge were more likely to Plan and to succeed in their Planning. Moreover, those who did Plan were more likely to rely on formal Planning methods such as Retirement calculators, Retirement seminars, and financial experts, and less likely to rely on family/relatives or co-workers.

  • financial literacy and Planning implications for Retirement wellbeing
    2005
    Co-Authors: Annamaria Lusardi, Olivia S Mitchell
    Abstract:

    Only a minority of American households feels "confident" about Retirement saving adequacy, and little is known about why people fail to Plan for Retirement, and whether Planning and information costs might affect Retirement saving patterns. To better understand these issues, we devised and fielded a purpose-built module on Planning and financial literacy for the 2004 Health and Retirement Study (HRS). This module measures how workers make their saving decisions, how they collect the information for making these decisions, and whether they possess the financial literacy needed to make these decisions. Our analysis shows that financial illiteracy is widespread among older Americans: only half of the age 50 respondents could correctly answer two simple questions regarding interest compounding and inflation, and only one-third correctly answered these two questions and a question about risk diversification. Women, minorities, and those without a college degree were particularly at risk of displaying low financial knowledge. We also evaluate whether people tried to figure out how much they need to save for Retirement, whether they devised a Plan, and whether they succeeded at the Plan. In fact, these calculations prove to be difficult: fewer than one-third of our age 50 respondents ever tried to devise a Retirement Plan, and only two-thirds of those who tried actually claim to have succeeded. Overall, fewer than one-fifth of the respondents believed they engaged in successful Retirement Planning. We also find that financial knowledge and Planning are clearly interrelated: those who displayed financial knowledge were more likely to Plan and to succeed in their Planning. Moreover, those who did Plan were more likely to rely on formal methods such as Retirement calculators, Retirement seminars, and financial experts, and less likely to rely on family/relatives or co-workers.