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Effects of Public Policies on the Disposition of Lump-Sum Distributions: Rational and Behavioral Inf

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by William G. Gale and Michael Dworsky

WP#2006-15  

Abstract

This paper provides new evidence on how public policies affect individuals' disposition of pre-retirement lump-sum distributions (LSDs) from pensions. The policies, enacted in the 1980s and 1990s, include changes in tax rates, penalties, withholding rules, and default options. Using data from the Health and Retirement Study, we find that each set of policies influence LSD choices independently and through interactions with the other set. The impact of defaults and withholding rules implies that behavioral considerations influence household choices. This in turn creates the possibility that a wide range of policies could be used to change saving behavior.

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William G. Gale is the Arjay and Frances Miller Chair in Federal Economic Policy in the Economic Studies Program at the Brookings Institution. Michael Dworsky is a senior research assistant at the Brookings Institution. The research reported was performed, in part, pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The findings and conclusions expressed are solely those of the authors and do not represent the views of SSA, any agency of the Federal government, the Brookings Institution, or Boston College. The authors thank Gary Engelhardt and Mark Iwry for very helpful comments.

Tags: Private Pensions, Working Papers,
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