Plan Design and Participant Behavior in Defined Contribution Retirement Plans: Past, Present, and Future

Abstract

This paper provides a state-of-the-art overview of defined contribution retirement plan design for academics, policy makers, and industry participants. I begin by considering the impact of basic plan design on participation rates, contribution rates, and portfolio choice, both overall and among employees with lower levels of financial literacy. Next, I consider the short-term and longer-term impacts of automatic enrollment and default investment options, including potential negative effects with respect to participant engagement. I also ask how the framing of plan features and plan communication can impact participant behavior. Finally, I examine recent plan changes including the integration of life annuities into retirement plans and target date funds (TDFs), managed accounts as alternatives to TDFs, emergency savings accounts, state-sponsored retirement plans, and national legislation like SECURE 2.0 that is intended to increase plan access and opportunities for employer matches.