Do Employer Pension Contributions Reflect Employee Preferences? Evidence from a Retirement Savings Reform in Denmark
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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.Citation
Fadlon, Itzik, Jessica Laird, and Torben Heien Nielsen. 2016. "Do Employer Pension Contributions Reflect Employee Preferences? Evidence from a Retirement Savings Reform in Denmark." American Economic Journal: Applied Economics, 8 (3): 196-216. DOI: 10.1257/app.20150015Additional Materials
JEL Classification
- D14 Household Saving; Personal Finance
- J26 Retirement; Retirement Policies
- J32 Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
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