Wharton Pension Research Council Working Papers

Document Type

Working Paper

Date of this Version



Most retirees take payouts from their defined contribution pensions as lump sums, but the US Treasury recently moved to encourage firms and individuals to convert some of the $15 trillion in plan balances into longevity income annuities paying lifetime benefits from age 85 onward. We evaluate the welfare implications of this reform using a calibrated lifecycle consumption and portfolio choice model embodying realistic institutional considerations. We show that defaulting a fixed fraction of workers’ 401(k) assets over a dollar threshold is a cost-effective and appealing way to enhance retirement security, enhancing welfare by up to 20% of retiree plan accruals.


life cycle saving; household finance, longevity risk; 401(k) plans; retirement

JEL Code

G11, G22, D14, D91

Working Paper Number


Copyright/Permission Statement

Opinions and any errors are solely those of the authors and not of the institutions with which the authors are affiliated. ©2017 Horneff, Maurer, and Mitchell


The authors are grateful for support from the TIAA Institute, as well as funding provided by the German Investment and Asset Management Association (BVI), the SAFE Research Center funded by the State of Hessen, and the Pension Research Council/Boettner Center at The Wharton School of the University of Pennsylvania. We also thank the initiative High Performance Computing in Hessen for grating us computing time at the LOEWECSC and Lichtenberg Cluster. Helpful insights were provided by Mark Iwry.

Included in

Economics Commons



Date Posted: 13 February 2019