Open AccessDo Employer Pension Contributions Reflect Employee Preferences? Evidence from a Retirement Savings Reform in Denmark
Author(s) -
Itzik Fadlon,
Jessica Laird,
Torben Heien Nielsen
Publication year - 2015
Publication title -
american economic journal. applied economics
Language(s) - English
Resource type - Journals
pISSN - 1945-7782
DOI - 10.3386/w21665
Subject(s) - pension , labour economics , subsidy , economics , private pension , capital (architecture) , business , demographic economics , finance , market economy , archaeology , history
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.