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Cited by 354Financial Literacy, Pension, Retirement AnalysisDecision-Making and Behavioral EconomicsFinancial Literacy and Behavior

$100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans

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Choi, James J., Laibson, David, Madrian, Brigitte C.·2011·Review of Economics and Statistics
DOI 10.1162/rest_a_00100PMC PMC3158583
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Abstract

We identify employees at seven companies whose 401(k) investment choices are dominated because they are contributing less than the employer matching contribution threshold despite being vested in their match and being able to make penalty-free 401(k) withdrawals for any reason because they are older than 59½. At the average firm, 36% of match-eligible employees over 59½ forego arbitrage profits that average 1.6% of their annual pay, or $507. A survey educating employees about the free lunch they are foregoing raised contribution rates by a statistically insignificant 0.67 percent of income among those completing the survey.

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  • A large fraction of employees eligible for an employer match in 401(k) plans either do not participate at all or contribute less than the amount required to be granted the full employer match, foregoing matching contributions which cumulate to substantial losses over time.

    “Choi et al. (2011) investigate contributions to 401(k) plans by employees who are eligible for an employer match and find that a large fraction of these employees either do not participate at all or contribute less than the amount required to be granted the full employer match, thus foregoing matching contributions which cumulate to substantial losses over time.”

    From Financial literacy, financial advice, and financial behavior (2017) · cites this paper as Choi et al. (2011)

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Authors
Choi, J. J., Laibson, D., & Madrian, B. C.
Affiliations
National Bureau of Economic Research (US)
ORCID
Venue
Review of Economics and Statistics
Publisher
MIT Press
Published
2011-08
Volume
93
Issue
3
Pages
748-763
ISSN
  • 0034-6535 (ISSN-L)
  • 1530-9142
DOI
10.1162/rest_a_00100
PMC
PMC3158583
OpenAlex
W2890375271
Cited by
354
References
1
Citations by year
2026: 7 · 2025: 15 · 2024: 39 · 2023: 11 · 2022: 20 · 2021: 19 · 2020: 19 · 2019: 31 · 2018: 23 · 2017: 24 · 2016: 33 · 2015: 26 · 2014: 27 · 2013: 14 · 2012: 14
FWCI
52.58
Type
journal article
Language
en
Open access
Locations
  • The Review of Economics and Statistics (publishedVersion)
  • PubMed (publishedVersion)
  • PubMed Central (acceptedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
Funders
National Institute on Aging (R01AG021650, T32AG000186, P01AG005842)
Topics
  • Social Sciences › Business, Management and Accounting › Accounting › Financial Literacy, Pension, Retirement Analysis
  • Social Sciences › Decision Sciences › General Decision Sciences › Decision-Making and Behavioral Economics
  • Social Sciences › Business, Management and Accounting › Accounting › Financial Literacy and Behavior
Keywords
401(k) plans, employer matching contributions, employee education, retirement savings, pension system design

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