$100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans

Rev Econ Stat. 2011 Aug;93(3):748-763. doi: 10.1162/REST_a_00100.


We identify employees at seven companies whose 401(k) investment choices are dominated because they are contributing less than the employer matching contribution threshold despite being vested in their match and being able to make penalty-free 401(k) withdrawals for any reason because they are older than 59½. At the average firm, 36% of match-eligible employees over 59½ forego arbitrage profits that average 1.6% of their annual pay, or $507. A survey educating employees about the free lunch they are foregoing raised contribution rates by a statistically insignificant 0.67 percent of income among those completing the survey.