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The Impact of Employer Matching on Savings Plan Participation under Automatic Enrollment

In: Research Findings in the Economics of Aging

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Author Info

  • John Beshears
  • James J. Choi
  • David Laibson
  • Brigitte C. Madrian

Abstract

Existing research has documented the large impact that automatic enrollment has on savings plan participation. All the companies examined in these studies, however, have combined automatic enrollment with an employer match. This raises a question about how effective automatic enrollment would be without a direct financial inducement not to opt out of participation. This paper's results suggest that the match has only a modest impact on opt-out rates. We estimate that moving from a typical matching structure - a match of 50% up to 6% of pay contributed - to no match would reduce participation under automatic enrollment at six months after plan eligibility by 5 to 11 percentage points. Our analysis includes a firm that switched from a match to a non-contingent employer contribution. This firm's experience suggests that non-contingent employer contributions only weakly crowd out employee participation.

(This abstract was borrowed from another version of this item.)

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This chapter was published in:

  • David A. Wise, 2010. "Research Findings in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise08-1, Ekim.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 8208.

    Handle: RePEc:nbr:nberch:8208

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Gary V. Engelhardt & Anil Kumar, 2006. "Employer Matching and 401(k) Saving: Evidence from the Health and Retirement Study," NBER Working Papers 12447, National Bureau of Economic Research, Inc.
    2. Leslie E. Papke, 1995. "Participation in and Contributions to 401(k) Pension Plans: Evidence from Plan Data," Journal of Human Resources, University of Wisconsin Press, vol. 30(2), pages 311-325.
    3. Esther Duflo & William Gale & Jeffrey Liebman & Peter Orszag & Emmanuel Saez, 2005. "Saving Incentives for Low- and Middle-Income Families: Evidence from a Field Experiment with H&R Block," NBER Working Papers 11680, National Bureau of Economic Research, Inc.
    4. Brigitte C. Madrian & Dennis F. Shea, 2000. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," NBER Working Papers 7682, National Bureau of Economic Research, Inc.
    5. William F. Bassett & Michael J. Fleming & Anthony P. Rodrigues, 1998. "How workers use 401(k) plans: the participation, contribution, and withdrawal decisions," Staff Reports 38, Federal Reserve Bank of New York.
    6. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2002. "Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance," JCPR Working Papers 257, Northwestern University/University of Chicago Joint Center for Poverty Research.
    7. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2005. "The importance of default options for retirement saving outcomes: evidence from the United States," CeRP Working Papers 43, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    8. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2002. "For Better or For Worse: Default Effects and 401(k) Savings Behavior," JCPR Working Papers 256, Northwestern University/University of Chicago Joint Center for Poverty Research.
    9. Papke, Leslie E. & Poterba, James M., 1995. "Survey evidence on employer match rates and employee saving behavior in 401(k) plans," Economics Letters, Elsevier, vol. 49(3), pages 313-317, September.
    10. James J. Choi & David Laibson & Brigitte C. Madrian, 2011. "$100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 748-763, August.
    11. Gabriel D. Carroll & James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2009. "Optimal Defaults and Active Decisions," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 124(4), pages 1639-1674, November.
    12. James J. Choi & David Laibson & Brigitte C. Madrian, 2005. "$100 Bills on the Sidewalk: Suboptimal Saving in 401(k) Plans," Levine's Bibliography 784828000000000649, UCLA Department of Economics.
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    Cited by:
    1. Mauricio Soto & Barbara A. Butrica, 2009. "Will Automatic Enrollment Reduce Employer Contributions to 401(k) Plans?," Working Papers, Center for Retirement Research at Boston College wp2009-33, Center for Retirement Research, revised Dec 2009.
    2. Keenan Dworak-Fisher, 2008. "Encouraging Participation in 401(k) Plans: Reconsidering the Employer Match," Working Papers, U.S. Bureau of Labor Statistics 420, U.S. Bureau of Labor Statistics.
    3. Alicia H. Munnell & Laura Quinby, 2010. "Why Did Some Employers Suspend Their 401(k) Match?," Issues in Brief ib2009-10-2, Center for Retirement Research, revised Feb 2010.

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