Madrian, Brigitte C

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2003 - 20066
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  • Publication
    Plan Design and 401(k) Savings Outcomes
    (2004-03-15) Choi, James J; Laibson, David; Madrian, Brigitte C
    We assess the impact of 401(k) plan design on four different 401(k) savings outcomes: participation in the 401(k) plan, the distribution of employee contribution rates, asset allocation, and cash distributions. We show that plan design can have an important effect on all of these savings outcomes. This suggests an important role for both employers in determining how to structure their 401(k) plans and government regulators in creating institutions that encourage or discourage particular aspects of 401(k) plan design.
  • Publication
    Reducing the Complexity Costs of 401(k) Participation Through Quick Enrollment™
    (2006-01-01) Choi, James J; Laibson, David; Madrian, Brigitte C
    The complexity of the retirement savings decision may overwhelm employees, encouraging procrastination and reducing 401(k) enrollment rates. We study a low-cost manipulation designed to simplify the 401(k) enrollment process. Employees are given the option to make a Quick Enrollment™ election to enroll in their 401(k) plan at a pre-selected contribution rate and asset allocation. By decoupling the participation decision from the savings rate and asset allocation decisions, the Quick Enrollment™ mechanism simplifies the savings plan decision process. We find that at one company, Quick Enrollment™ tripled 401(k) participation rates among new employees three months after hire. When Quick Enrollment™ was offered to previously hired non-participating employees at two firms, participation increased by 10 to 20 percentage points among those employees affected.
  • Publication
    $100 Bills on the Sidewalk: Suboptimal Saving in 401(k) Plans
    (2006-01-01) Choi, James J; Laibson, David; Madrian, Brigitte C
    It is typically difficult to determine whether households save optimally. But in some cases, savings incentives are strong enough to imply sharp normative restrictions. We consider employees who receive employer matching contributions in their 401(k) plan and are allowed to make discretionary, penalty-free, in-service withdrawals. For these employees, contributing below the match threshold is a dominated action. Nevertheless, half of employees with these clear-cut incentives do contribute below the match threshold, foregoing matching contributions that average 1.3% of their annual pay. Providing these “undersavers” with specific information about the free lunch they are giving up fails to raise their contribution rates.
  • Publication
    The Importance of Default Options for Retirement Saving Outcomes: Evidence from the United States
    (2006-01-01) Beshears, John; Choi, James J; Laibson, David; Madrian, Brigitte C
    This paper summarizes the empirical evidence on how defaults impact retirement savings outcomes. After outlining the salient features of the various sources of retirement income in the U.S., the paper presents the empirical evidence on how defaults impact retirement savings outcomes at all stages of the savings lifecycle, including savings plan participation, savings rates, asset allocation, and post-retirement savings distributions. The paper then discusses why defaults have such a tremendous impact on savings outcomes. The paper concludes with a discussion of the role of public policy towards retirement saving when defaults matter.
  • Publication
    Employee Stock Purchase Plans
    (2004-01-01) Engelhardt, Gary V; Madrian, Brigitte C
    Employee stock purchase plans (ESPPs) are designed to promote employee stock ownership broadly within the firm and provide another tax-deferred vehicle for individual capital accumulation in addition to traditional pensions, 401(k)s, and stock options. We outline the individual and corporate tax treatment of ESPPs and the circumstances under which ESPPs will be preferred to cash compensation from a purely tax perspective. We then examine empirically ESPP participation using administrative data from 1997-2001 for a large health services company that employs approximately 30,000 people. The picture that emerges from the analysis of these data suggests that there is substantial non-participation in these plans even though all employees could increase gross compensation through participation. We discuss a number of potential explanations for non-participation.
  • Publication
    Employee Investment Decisions about Company Stock
    (2003-01-01) Choi, James J; Laibson, David; Madrian, Brigitte C; Metrick, Andrew
    We study the relationship between past returns on a company’s stock and the level of investment in that stock by participants in that firm’s 401(k) plan. Several different decision points are of interest: the initial fraction of savings allocated to company stock, the changes in this fraction, and the reallocations of portfolio holdings across different asset classes. We find that high past returns on company stock do induce participants to allocate more of their new contributions to company stock. By contrast, high company stock have the opposite effect on reallocations of portfolio holdings: high returns produce portfolio shifts away from company stock and into other forms of equity. Overall, for company stock decisions, participants in our sample appear to be momentum investors when making contribution decisions, but they are contrarian investors when making trading decisions.