Source: Engen et al (1996), p. 116saez/course/socialsecurity/ira...rm: Co mp an y B 0% 20 % 40 % 60 % 80 % 10 0% 0 6 12 1 8 2 4 30 36 42 48 Te nur e a t c o m p a n y (m ont hs) Fr

Source: Engen et al (1996), p. 116

Figure 5a. Private Pension Contributions

0

50

100

150

200

250

1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999Year

Ass

ets

in B

illio

ns

DB DC IRA Keogh

Source: statistics computed by the author(s)

Figure 6b. Ratio of Private and Total Pension Contributions to Wage and Salary Earnings

0

0.02

0.04

0.06

0.08

0.1

0.12

1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999Year

Rat

io

Private Contributions/Private W&S Total Contributions/Total W&S

Source: statistics computed by the author(s)

Effects on contributions (unconditional)

$22

$85

$155

$22

$99

$222

$0

$50

$100

$150

$200

$250

0% 20% 50%Match rate

Ave

rage

con

trib

utio

n From client

With match

Source: Duflo et al. (2006)

Table 8: Saver's Credit Parameters

Married Filing Jointly Head of Household Single and othersCredit Rate Equivalent

Match Rate AGI range AGI range AGI ranget t/(1-t)

50% 100% $0-$30,000 $0-$22,500 $0-$15,000

20% 25% $30,001-$32,500 $22,501-$24,375 $15,001-$16,250

10% 11.1% $32,501-$50,000 $24,376-$37,500 $16,251-$25,000

0% 0% $50,001+ $37,501+ $25,001+

Saver's credit is a non-refundable federal income tax credit proportional to the sum of IRAs and 401(k)s contributions up to $2,000 of contributions (per spouse for married) AGI = gross income - 401k - Traditional IRA


100% Match 25% 11% Match 0% Match

01

23

45

Per

cent

Con

tribu

ting

to X

-IRA

20000 30000 40000 50000 60000Normalized AGI

Percent X-IRA Contributors by $250 AGI BandsFigure 4


Effects of Credit vs Match on X-IRA Take-up

3.3

6.4

10.0

0

2

4

6

8

10

12

Control Credit MatchPresentation

Part

icip

atio

n ra

te (p

erce

nt)


6

Automatic enrollment effectAutomatic enrollment dramatically increases participation.

401(k) participation by tenure at firm: Company B

0%

20%

40%

60%

80%

100%

0 6 12 18 24 30 36 42 48

Tenure at company (months)

Frac

tion

of e

mpl

oyee

s ev

er

parti

cipa

ted

Hired before automatic enrollment Hired during automatic enrollment Hired after automatic enrollment ended

Source: Madrian and Shea (2001)

7

Automatic enrollment effectEmployees enrolled under automatic enrollment cluster at the default contribution rate.

Distribution of contribution rates: Company B

3

2017

37

149

1

67

7

14

6 469

2631

18

10

0%

10%

20%

30%

40%

50%

60%

70%

80%

1% 2% 3-5% 6% 7-10% 11-16%

Contribution rate

Frac

tion

of p

artic

ipan

ts

Hired before automatic enrollment Hired during automatic enrollment (2% default) Hired after automatic enrollment ended

Default contributionrate under automaticenrollment

Source: Madrian and Shea (2001)

11

Active decision effect on participation401(k) participation increases substantially when employees are not allowed to be passive about savings.

401(k) participation by tenure: Company E

0%

20%

40%

60%

80%

100%

0 6 12 18 24 30 36 42 48 54Tenure at company (months)

Frac

tion

of e

mpl

oyee

s ev

er

parti

cipa

ted

Active decision cohort Standard enrollment cohort

Source: courtesy of David Laibson

18

Employer match threshold and contribution ratesChanging the match threshold caused employees to slowly move from the old threshold to the new threshold.

401(k) contribution rate response to match threshold change: Company G

0%

10%

20%

30%

40%

50%

Mar-96 Oct-96 May-97 Dec-97 Jul-98 Feb-99 Sep-99

% o

f Par

ticip

ants

1-4% 5-6% 7-8%9-10% 11-15% 16-25%

Jan-97


The Flypaper Effect in Individual Investor Asset Allocation (Choi Laibson Madrian 2007)Asset Allocation (Choi, Laibson, Madrian 2007)

Studied a firm that used several different match systems inStudied a firm that used several different match systems in their 401(k) plan.

I’ll discuss two of those regimes today:

Match allocated to employer stock and workers can reallocate Call this “default” case (default is employer stock)Call this default case (default is employer stock)

Match allocated to an asset actively chosen by workers; orkers req ired to make an acti e designationworkers required to make an active designation.

Call this “no default” case (workers must choose)

E i ll th t t id ti lEconomically, these two systems are identical.They both allow workers to do whatever the worker wants.


Consequences of the two regimes

Default NoBalances in employer stock

Default ES

No Default

24% 20%Own Balance in Employer Stock 24% 20%

Matching Balance in Employer Stock 94% 27%g p y

Total Balance in Employer Stock 56% 22%

14


Cash Distributions

What happens to savings plan balances when employees leaveWhat happens to savings plan balances when employees leave their jobs?

Employees can request a cash distribution or roll balances over into another account Balances >$5000: default leaves balances with former employer Balances <$5000: default distributes balances as cash transfer Balances <$5000: default distributes balances as cash transfer

Vast majority of employees accept default (Choi et al. 2002, 2004a and 2004b)

When employees receive small cash distributions, balances typically consumed (Poterba, Venti and Wise 1998)


Post-Retirement Distributions

Social Security Social Security Joint and survivor annuity (reduced benefits)D fi d b fit i Defined benefit pension Annuity

L t if ff d Lump sum payout if offered Defined contribution savings plan Lump sum payout Annuity if offered


Defined Benefit Pension Annuitization

Annuity income and economic welfare of the elderly Annuity income and economic welfare of the elderly Social Security replacement rate relatively low on average 17% of women fall into poverty after the death of their p y

spouse (Holden and Zick 2000) For married individuals, three distinct annuitization

iregimes Pre-1974: no regulation ERISA I (1974): default joint-and-survivor annuity with ERISA I (1974): default joint and survivor annuity with

option to opt-out ERISA II (1984 amendment): default joint-and-survivor

annuity opting out required notarized permission of spouseannuity, opting out required notarized permission of spouse


Impacts of Government Policies on Savings

for Active vs. Passive Savers

Automatic Contribution Price Subsidy

Raises Pension

Contribs.

M+P?

Raises Total

Savings

M+P+S?

Raises Pension

Contribs.

M+P?

Raises Total

Savings

M+P+S?

Active Savers No No Yes Uncertain

Passive Savers Yes Uncertain No No

Data Yes Yes Yes No

Source: Chetty et al. QJE'14

Con

tribu

tion

or S

avin

gs R

ate

(% o

f inc

ome)

Year Relative to Firm Switch

Δ Employer Pensions = 5.65 Δ Total Pensions = 4.86

2 6

10

14

18

-5 0 5

Employer Pensions Total Pensions

Event Study around Switches to Firm with >3% Increase in Employer Pension Rate

Individuals with Positive Pension Contributions or Savings Prior to Switch


Con

tribu

tion

or S

avin

gs R

ate

(% o

f inc

ome)


Δ Employer Pensions = 5.65 Δ Total Savings = 4.44

2 6

10

14

18

-5 0 5

Employer Pensions Total Saving

Event Study around Switches to Firm with >3% Increase in Employer Pension Rate

Individuals with Positive Pension Contributions or Savings Prior to Switch


Fraction at Corner around Switches to Firm with

>3% Increase in Employer Pension Rate


Per

cent

at C

orne

r

Δ Zero Pension Contrib.= 1.4%

20

40

60

80

100

-5 0 5

Individual Pensions



Per

cent

at C

orne

r

Δ Zero Pension Contrib.= 1.4% Predicted = 28.4%

20

40

60

80

100

-5 0 5

Individual Pensions Predicted with Full Crowd-Out

Fraction at Corner around Switches to Firm with

>3% Increase in Employer Pension Rate


Mandated Savings (M) Around Eligibility Threshold in 1998 M

anda

ted

Sav

ings

(DK

r)

0 20

00

4000

60

00

14.5 24.5 34.5 44.5 54.5 Income (DKr 1000s)


Effect on Mandate on Private Savings:

Threshold Approach P

erce

nt w

ith N

on-E

mpl

oyer

Sav

ings

> 1

962

DK

r

Empirical Predicted with 100% Pass-Through Income (DKr 1000s)

34

36

38

40

42

44

14.5 24.5 34.5 44.5 54.5

Private Savings Pass-Through Rate: b = 117% (27%)


Gross Income Prior to Pension Contribution (DKr 1000s)

Note: $1 6 DKr

1998

1999

Treated group Control group

DSubsidy = -14%

Subsidy for Capital Pensions in 1999 S

ubsi

dy fo

r Cap

ital P

ensi

on C

ontri

bs.

175 200 225 250 275 300 325

0 20

%

40%

60

%


Impact of Subsidy Reduction On Individual Capital Pension Contribs. C

apita

l Pen

sion

Con

tribu

tion

(DK

r)

25-75K Below Top Tax Cutoff 25-75K Above Top Tax Cutoff

Subsidy for Capital Pension Reduced

DD Impact Estimate: β = - 2439.2 (97.65)

Year

2000

30

00

4000

50

00

6000

1995 1996 1997 1998 1999 2000 2001 2002


Impact of Capital Pension Subsidy Reduction On Annuity Pension Contributions


Ann

uity

Pen

sion

Con

tribu

tion

(DK

r)

Year

0 10

00

2000

30

00

4000

1995 1996 1997 1998 1999 2000 2001 2002


Annuity Pension Offset: β = 56% (4.7%)


Impact of Capital Pension Subsidy Reduction On Total Pension Contributions


Tota

l Pen

sion

Con

tribu

tion

(DK

r)

Year


3000

40

00

5000

60

00

7000

1995 1996 1997 1998 1999 2000 2001 2002


Change in Total Pension Contributions

Post-Reform (1999-2001) minus Pre-Reform (1996-1998) C

hang

e in

Tot

al P

ensi

ons

(DK

r)

Income Relative to Top Tax Cutoff (DKr)

-200

0 -1

500

-100

0 -5

00

0

-75000 -50000 -25000 0 25000 50000 75000

Change in Slope at Cutoff = - 9.9 / 1000 (1.2) Total Pensions Pass-Through Rate Δ Tot. Pens. / Δ Cap. Pens.: β = 0.48

(0.05)


Change in Taxable Savings


hang

e in

Tax

able

Sav

ings

(DK

r)


-800

-4

00

0 40

0

-75000 -50000 -25000 0 25000 50000 75000

Crowd-Out of Pension Contribution ΔTaxable Saving / Δ Pension Contrib.: β = -1.47 (0.67)

Change in Slope at Cutoff = 5.9 / 1000

(2.8)


Effects of match rates on X-IRA participation

2.9

7.7

14.0

0

2

4

6

8

10

12

14

16


Part

icip

atio

n ra

te (p

erce

nt)

Source: Duflo et al. QJE'06

0% match

20% match

50% match

20% - 0%

50% - 20%

50% - 0%

Opened an X-IRA (%) 2.90 7.72 13.98 4.82 6.26 11.07(0.24) (0.40) (0.50) (0.46) (0.65) (0.56)

Amount contributed ($) $22 $85 $155 $63 $70 $133(unconditional) (3) (6) (7) (7) (10) (8)

Amount contributed ($) $765 $1,102 $1,108 $337 $6 $343(conditional) (84) (55) (34) (102) (62) (85)

Amount contributed+match $22 $99 $222 $77 $124 $200

(unconditional) (3) (7) (10) (7) (12) (11)

Amount contributed+match $765 $1,280 $1,591 $515 $310 $826(conditional) (84) (60) (44) (109) (74) (103)

Table 2: Effects of the experiment on X-IRA behavior


.8.8

5.9

.95

1

Per

cent

ile o

f X-IR

A D

istri

butio

n

0 300 500 1000 1500 2000X-IRA Contribution Amount

No Match 20% Match 50% Match

Cumulated Distributions of Contributions, Non Married TaxpayersFigure 1B


Withdrawal activity: fraction contributors after 3 months

2.9

7.7

14.0

2.9

7.5

13.3

0

2

4

6

8

10

12

14

16


Part

icip

atio

n ra

te (p

erce

nt) Initial

After 3 months


Impact of 1999 Capital Pension Subsidy Reduction On Capital Pension Contribs.

1996

1999

1997

2000

1998

2001

Cap

ital P

ensi

on C

ontri

butio

n (D

Kr)

0

5000

10

000

1500

0

-75000 -50000 -25000 0 25000 50000 75000 Income Relative to Top Tax Cutoff (DKr)


Impact of Capital Pension Subsidy Reduction On Total Pension Contributions


Tota

l Pen

sion

Con

tribu

tion

(DK

r)

Total Pensions Pass-Through Rate: β = 44% (4.7%)

Year

Subsidy for Capital Pension Reduced Change in Capital Pensions

3000

40

00

5000

60

00

7000

1995 1996 1997 1998 1999 2000 2001 2002


1000

0 15

000

2000

0 25

000

3000

0 35

000

Tota

l Pen

sion

s (D

Kr)

-75000 -50000 -25000 0 25000 50000 75000

Before Reduction in Subsidy

Total Pensions vs. Income:

Before and After Reduction in Capital Pension Subsidy

Income Relative to Top Tax Cutoff (DKr) Source: Chetty et al. QJE'14

1000

0 15

000

2000

0 25

000

3000

0 35

000

Tota

l Pen

sion

s (D

Kr)

-75000 -50000 -25000 0 25000 50000 75000

Total Pensions vs. Income:

Before and After Reduction in Capital Pension Subsidy

Income Relative to Top Tax Cutoff (DKr) Before Reduction in Subsidy After Reduction in Subsidy


Change in Total Pension Contributions


hang

e in

Tot

al P

ensi

ons

(DK

r)


-200

0 -1

500

-100

0 -5

00

0

-75000 -50000 -25000 0 25000 50000 75000

Change in Slope at Cutoff = - 9.9 / 1000 (1.2) Total Pensions Pass-Through Rate Δ Tot. Pens. / Δ Cap. Pens.: β = 0.48

(0.05)


Change in Taxable Savings


hang

e in

Tax

able

Sav

ings

(DK

r)


-800

-4

00

0 40

0

-75000 -50000 -25000 0 25000 50000 75000


Change in Slope at Cutoff = 5.9 / 1000

(2.8)


Change in Fraction with Above-Median Savings

Post-Reform (1999-2001) minus Pre-Reform (1996-1998)


Cha

nge

in %

with

Tax

able

Sav

ings

Abo

ve M

edia

n

-1.2

5 -.7

5 -.2

5 .2

5 .7

5 1.

25

-75000 -50000 -25000 0 25000 50000 75000


Ch. in Slope at Cutoff = 0.019% / 1000 (0.004%)


Consider impacts of a DKR 1000 increase in pre-tax income

DKR 10.0 less contributed to retirement accounts when subsidy fell

MTR of 60% disposable income rises by 0.4 x 10.0 = DKR 4.0

DKR 3.92 of this is deposited in taxable savings

DKR 0.08 is consumed net saving falls by DKR 0.08

98% of the increase in pension contributions due to subsidies is financed

by offsetting reductions in savings in taxable accounts

Based on this estimate, we calculate that each DKr 1 of tax expenditure

on subsidies raises total saving by less than 1 cent

Crowd-Out Estimates


Heterogeneity in Response to Capital Pension Subsidy by Wealth/Income Ratio

Wealth/Income Ratio in 1998

10

15

20

25

0 .5 1 1.5

b = 7.1

(0.4)

% E

xitin

g C

apita

l Pen

sion

and

Rai

sing

Ann

uity

in 1

999


050

0010

000

1500

0

-75000 -50000 -25000 0 25000 50000 75000Income Relative to Top Tax Cutoff (DKr)

Cap

ital P

ensi

on C

ontri

butio

n (D

Kr)

Capital Pensions vs. Income in 1996

Change in MPS at cutoff = 0.6%


-.02

-.01

0.0

1.0

2

1996 1997 1998 1999 2000 2001

Change in Marginal Propensity to Save in Annuity vs. Capital Accounts

at Top Tax Cutoff by Year

Year

Diff

eren

ce in

MP

S A

bove

vs.

Bel

ow T

op T

ax C

utof

f

Diff-in-Diff: 𝜇𝑀𝑃𝑆 = -0.021(0.002)


Annuity Pension Capital Pension

-.02

-.01

0.0

1.0

2

1996 1997 1998 1999 2000 2001

Diff

eren

ce in

MP

S A

bove

vs.

Bel

ow T

op T

ax C

utof

f

Year

Crowd-out: 𝜙𝑀𝑃𝑆= 47.1%(5.6%)

Change in Marginal Propensity to Save in Annuity vs. Capital Accounts

at Top Tax Cutoff by YearSource: Chetty et al. QJE'14

Use change in capital pension subsidy as an instrument for total

pension contributions

$1 reduction in capital pensions 45 cent reduction in total pensions

Does this 45 cents go into consumption or saving in taxable accounts?

Shifting from Retirement to Taxable SavingsSource: Chetty et al. QJE'14

-.02

-.01

0.0

1.0

2

1996 1997 1998 1999 2000 2001

Diff

eren

ce in

MP

S A

bove

vs.

Bel

ow T

op T

ax C

utof

f

YearRetirement Accounts

Change in Marginal Propensity to Save in Retirement

vs. Non-Retirement Accounts at Top Tax Cutoff by YearSource: Chetty et al. QJE'14

-.02

-.01

0.0

1.0

2

1996 1997 1998 1999 2000 2001

Diff

eren

ce in

MP

S A

bove

vs.

Bel

ow T

op T

ax C

utof

f

YearRetirement Accounts Taxable Savings Accounts

Change in Marginal Propensity to Save in Retirement

vs. Non-Retirement Accounts at Top Tax Cutoff by Year

Crowd-out: 𝜙𝐿= 120%(59%)


AnnuityContrib.

Total PensionContrib.

TaxableSaving

TrimmedTaxableSaving

TaxableSaving

Threshold

(1) (2) (3) (4) (5)

Capital Pension Contrib.

-0.471(0.056)

0.529(0.056)

Total Pension Contrib.

-1.200(0.588)

-0.984(0.267)

-0.994(0.215)

No. of Obs. 7,026,187 7,026,187 7,026,187 7,026,187 7,026,187

Estimates of Crowd-out Induced by Subsidy Change

Based on Changes in Marginal Propensity to Save


Documents

Source: Engen et al (1996), p. 116saez/course/socialsecurity/ira...rm: Co mp an y B 0% 20 % 40 % 60 % 80 % 10 0% 0 6 12 1 8 2 4 30 36 42 48 Te nur e a t c o m p a n y (m ont hs) Fr