The complexity of health and retirement benefit plan offerings can make it difficult for employees to make optimal decisions.
Health and retirement benefits can account for a substantial share of employee compensation. Yet, employees often make poor choices when presented with a variety of plan options. This paper examines whether people who make mistakes in choosing a health insurance plan also err in retirement-saving decisions. Understanding the correlation in these mistakes can help employers find ways to improve employees' benefit choices and financial outcomes.
- Many employees pick a more expensive health plan option, even when, for all possible spending realizations, lower costs are more likely in the cheapest plan.
- People who make mistakes in health insurance choices are more likely to save too little for retirement and forgo employer-matching funds.
- Employees with lower salaries and longer tenure have higher rates of shared mistakes.
- Employees who are younger and have shorter tenure and higher salaries are less likely to make mistakes in either domain.