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Reducing the Complexity Costs of 401(k) Participation Through Quick Enrollment(TM)

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

Abstract

The complexity of the retirement savings decision may overwhelm employees, encouraging procrastination and reducing 401(k) enrollment rates. We study a low-cost manipulation designed to simplify the 401(k) enrollment process. Employees are given the option to make a Quick Enrollment(TM) election to enroll in their 401(k) plan at a pre-selected contribution rate and asset allocation. By decoupling the participation decision from the savings rate and asset allocation decisions, the Quick Enrollment(TM) mechanism simplifies the savings plan decision process. We find that at one company, Quick Enrollment(TM) tripled 401(k) participation rates among new employees three months after hire. When Quick Enrollment(TM) was offered to previously hired non-participating employees at two firms, participation increased by 10 to 20 percentage points among those employees affected.

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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 122247000000000966.

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Date of creation: 31 Dec 2005
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Handle: RePEc:cla:levrem:122247000000000966

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  1. James Choi & David Laibson & Brigitte Madrian & Andrew Metrick, 2005. "Optimal Defaults and Active Decisions," Levine's Bibliography 666156000000000488, UCLA Department of Economics.
  2. Julie Agnew & Lisa R. Szykman, 2004. "Asset Allocation and Information Overload: The Influence of Information Display, Asset Choice and Investor Experience," Working Papers, Center for Retirement Research at Boston College wp2004-15, Center for Retirement Research, revised May 2004.
  3. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2004. "For Better or for Worse: Default Effects and 401(k) Savings Behavior," NBER Chapters, in: Perspectives on the Economics of Aging, pages 81-126 National Bureau of Economic Research, Inc.
  4. Dhar, Ravi & Nowlis, Stephen M, 1999. " The Effect of Time Pressure on Consumer Choice Deferral," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 25(4), pages 369-84, March.
  5. Brigitte C. Madrian & Dennis F. Shea, 2001. "THE POWER OF SUGGESTION: INERTIA IN 401(k) PARTICIPATION AND SAVINGS BEHAVIOR," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(4), pages 1149-1187, November.
  6. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2004. "Saving or Retirement on the Path of Least Resistance," Levine's Bibliography 122247000000000606, UCLA Department of Economics.
  7. John T. Gourville & Dilip Soman, 2005. "Overchoice and Assortment Type: When and Why Variety Backfires," Marketing Science, INFORMS, INFORMS, vol. 24(3), pages 382-395, July.
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  1. Behavioural Economics and Guardian Readers
    by Liam Delaney in Geary Behaviour Centre on 2008-07-19 13:02:00
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