Aim 1: Empirically quantify the impact of automatic enrollment retirement policies on retirement savings and total savings. Aim 2: Test the hypothesis that the perceived costs of retirement saving prevent workers from saving for retirement. Aim 3: Estimate the size of the upfront costs. Aim 4: Explore alternative optimal default policies
Numerous models have been proposed to explain why people offered access to pension plans tend to adhere to defaults when included as part of a retirement system design (Carroll et al. 2009; Bernheim et al. 2015; Goldin and Reck, 2017). Our work seeks to explore how people respond to alternative default policies, and also how default polices could be designed to achieve social optima. While it would be useful to explain the underlying mechanism driving default behavior, in general it is necessary to specify how individual utility enters into the social welfare function in order to characterize optimal default policies. Yet if behavioral factors generate observed default behavior, it is often unclear how to account for such psychological factors in the social welfare function. Another consideration is that many theories can account for default behavior, making it challenging to differentiate their predictions in empirical data, particularly when people are heterogeneous. Instead of proposing models to explain the underlying reasons for defaults, this project introduces a generalized sufficient statistic model to characterize individual saving and consumption decisions in the presence of a default. The goal is to better understand why people often fail to save for retirement on their own, yet tend to default into retirement plans when offered them at their place of employment.