July 2009
Retirement saving is undergoing a fundamental change as employers shift from defined benefit pension plans to defined contribution plans, such as 401(k) accounts. Defined contribution plans have important advantages: they allow households to customize their retirement saving to their own risk preferences and circumstances, they insulate pensioners from potential bankruptcies of their employers, and although there may be a modest vesting period, they allow workers to move from job to job without risking their pensions. These plans also place much greater burdens on consumers to make good financial decisions. But there is widespread concern that many households are not up to the task.
The Squam Lake Group, which includes Professors Cochrane, Diamond, Kashyap, and Rajan, just released a memo, “Regulation of Retirement,” which explores this issue.
