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Abstract

This paper analyzes the impact of automatic enrollment on 401(k) savings behavior. We have two key findings. First, 401(k) participation is significantly higher under automatic enrollment. Second, a substantial fraction of 401(k) participants hired under automatic enrollment retain both the default contribution rate and fund allocation even though few employees hired before automatic enrollment picked this particular outcome. This "default" behavior appears to result from participant inertia and from employee perceptions of the default as investment advice. These findings have implications for the design of 401(k) savings plans as well as for any type of Social Security reform that includes personal accounts over which individuals have control. They also shed light more generally on the importance of both economic and noneconomic (behavioral) factors in the determination of individual savings behavior. © 2001 the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Bibliographic Info

Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 116 (2001)
Issue (Month): 4 (November)
Pages: 1149-1187

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Handle: RePEc:tpr:qjecon:v:116:y:2001:i:4:p:1149-1187

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Find related papers by JEL classification:

• E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
• H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

References

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1. James M. Poterba & Steven F. Venti & David A. Wise, 1995. "401(k) Plans and Tax-Deferred Saving," NBER Working Papers 4181, National Bureau of Economic Research, Inc.
   
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14. Eric M. Engen & William G. Gale & John Karl Scholz, 1996. "The Illusory Effects of Saving Incentives on Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 113-138, Fall.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:

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   by Liam Delaney in Economics and Psychology Research on 2013-03-24 16:23:00
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