See on Scoop.it – Bounded Rationality and Beyond
The Save More Tomorrow plan allows employees to allocate a portion of their future salary increases toward retirement savings.
In the past decade, there has been a rapid shift among employers from defined benefit plans to defined contribution plans. As a result, employees now bear much more responsibility for their retirement savings.
Under defined benefit pension plans, retirement benefits depend on how long an employee has worked at a given company and his or her salary by the time they retire. Firms using these plans are essentially doing the saving for their employees. Under defined contribution plans, which are much easier for companies to administer, employees must take the initiative to join. Retirement benefits depend on how much the employee decides to contribute and how he or she chooses to invest that money.
While defined contribution plans such as 401(k) plans offer increased flexibility for those who enroll, studies have found that some employees at firms that only offer defined contribution plans contribute little or nothing to the plans.
Alessandro Cerboni
Knowledge Team 