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

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  • Laibson, David I.
  • Choi, James J.
  • Madrian, Brigitte

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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File URL: http://dash.harvard.edu/bitstream/handle/1/4686772/Laibson_ComplexityCost401K.pdf
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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4686772.

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Date of creation: 2009
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Publication status: Published in Developments in the Economics of Aging
Handle: RePEc:hrv:faseco:4686772

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  1. Gabriel D. Carroll & James J. Choi & David Laibson & Brigitte Madrian & Andrew Metrick, 2005. "Optimal Defaults and Active Decisions," NBER Working Papers 11074, National Bureau of Economic Research, Inc.
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Cited by:
  1. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2011. "Behavioral Economics Perspectives on Public Sector Pension Plans," NBER Working Papers 16728, National Bureau of Economic Research, Inc.
  2. Brigitte C. Madrian, 2009. "Comment on "Who Chooses Defined Contribution Plans?"," NBER Chapters, in: Social Security Policy in a Changing Environment, pages 162-165 National Bureau of Economic Research, Inc.
  3. Bolton, Gary E. & Ockenfels, Axel, 2012. "Behavioral economic engineering," Journal of Economic Psychology, Elsevier, Elsevier, vol. 33(3), pages 665-676.
  4. Giuseppe Cappelletti & Giovanni Guazzarotti & Pietro Tommasino, 2010. "The effect of age on portfolio choices: evidence form an Italian pension fund," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 768, Bank of Italy, Economic Research and International Relations Area.

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