Essays on retirement education and private pensions

This dissertation examines the effects of taking a retirement class on two choices employees must make within their defined contribution (DC) pension plans: whether to save their DC balance upon separation from their employer and how to allocate their assets within their pension plan. As DC plans are increasingly becoming the primary pension plan offered by employers, the choices employees make will affect their retirement security. With the future of Social Security uncertain, employer-sponsored pension plans will be playing an increasing role in providing retirement income for the future elderly.; The first chapter, Retirement Education and Pension Preservation: Does Retirement Education Teach Individuals to Save Pension Distributions? examines whether taking a retirement class affects an individual's decision to save or spend his pension distribution. Most DC plans allow the participant to take his pension balance with him upon job separation. Spending these distributions can have negative effects on retirement saving, and educating workers about the importance of saving their pension distributions may be one way of retaining some or all of these funds for retirement. This paper provides econometric evidence of the effect of retirement education on the use of pension distributions for DC participants. I find that retirement education substantially increases the probability of saving a distribution for participants age 40 and under, while decreasing the probability of saving a distribution for college graduates and females. These important differentials are concealed by estimating the effect of retirement education on participants generally.; I examine the effect of retirement education on asset allocation within a DC plan in Chapter 2, Investment Choice in Private Pensions: The Effects of Retirement Education on Asset Allocation. Increasing numbers of DC plans are being set up as self-directed plans, which allow participants to choose how their pension assets are invested. The portfolio one chooses can have substantial effects on the amount of pension income available during retirement. Recently, both pension plan sponsors and policy makers alike have become concerned as to whether participants have the financial knowledge to make such important decisions. This paper provides econometric evidence of the effect of retirement education on asset allocation in self-directed DC plans. I find that those with an extreme degree of risk aversion do not re-allocate their portfolios after taking a retirement class, whereas those with a slightly lower degree of risk aversion invest a larger percentage of their assets in equities after attending a class. Participants generally do not alter their behavior after attending a class. It is possible that this result is due to the heterogeneity in financial instruction or the inability of the model to detect small changes in asset allocation.