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Executive Paternalism

August 18, 2008

Improvements in public policy can gently coax people to save more money. But many of the important day-to-day savings decisions happen in the workplace. This post speaks to the libertarian paternalistic executive, an executive who would like to help their employees save more money, but does not want to infringe on their rights to do with their money as they please or to implement policies that will cost their company a lot of money. Here are a few ideas that will accomplish that.

  1. Implement the provisions of the Pension Protection Act  that now make it much easier for you to automatically enroll new employees in your 401(K) plan and to set default asset allocation of the plan to a lifecycle fund rather than a cash account. 
  2. Scrutinize the fees that your financial service provider charges for offering products in your plan. Pay particular attention to the annual management fees. Seemingly small differences in annual management fees can make big differences in the amount of money your employees have when they retire. 
  3. Limit the number of investment options in your 401(K). You don’t need that many options to allow employees to construct a diverse portfolio. Too many options will confuse them and often delay their asset allocation choice, leaving them with whatever default option is contained in the plan.
  4. Target women for financial educational seminars. Women are more likely to listen to financial advice than men. They also face more large financial decisions in their golden years because of their longevity relative to men.
  5. Be careful with your own conspicuous consumption. That consumption may put pressure on subordinates to mimic you, and thereby demonstrate that they have the same tastes as you. People tend to view others with similar tastes as smarter than those with tastes that are far afield from their own. Your employees want to look smart in your eyes. It is easier for them if they do not have to spend a lot of money signalling that they think like you do.

These are just a few ideas.  If you have additional ideas you are more than welcome to post them.

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