The Behavior of Defined Contribution Plan Participants

Susan J. Stabile

Defined contribution plans empower employees to effectively save money toward their retirement in a tax-favored fashion. The retirement benefits that employees actually receive depend on four decisions that they have to make: whether to participate in the plan, what percentage of salary to contribute to it, how to invest these plan contributions, and, if the employee leaves the job prior to retirement, whether to take a current cash distribution of their 401(k) plan account balance or allow the account balance to continue to accumulate. In her contribution to the Symposium, Professor Susan J. Stabile explores the behavioral tendencies that affect participant behavior in defined contribution plans and how the current legal regime influences that behavior. Her research finds that the current statutory regime has not produced economically rational decisions among employees. Professor Stabile provides a number of avenues that can be explored for promoting employee decisions that would maximize retirement security and can serve as a springboard for future research.

This article appears in the April 2002 Issue: Volume 77, Number 1