Choice Architecture, 401(k) Plans and the Argument for Restricting Choice

The topic of this article from yesterday’s Boston Globe, concerning behavioral economics and the idea that most people simply get it wrong when making investment choices with regard to retirement if they are left to their own devices, will be familiar to any long time reader of this blog, but it did catch my eye because its suggestion that employees need to be guided towards the right retirement choices echoes George Chimento’s point, which I discussed the other day, that perhaps 401(k) plans should actually be set up to take those choices away from employees and place them in the hands of someone with more knowledge about the subject. It’s a provocative idea, one that runs counter to the general Zeitgeist that we are all now responsible for funding our own retirements rather than passively relying on our employers to provide that as well, but the question of how best to generate appropriate returns for employees invested in such plans is, and should be, more widely discussed, including with regard to how much say individual employees should have in the matter. The Globe article is a nice survey of the theory behind the idea of just how much choice should be granted to employees in that context, and how structuring the choices available to them may affect the outcome for their retirements.

Fair warning, though: you may have to register (its free, but still annoying) to access the Globe article.