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

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  • James Choi
  • David Laibson
  • Brigitte 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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11979.

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Date of creation: Jan 2006
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Handle: RePEc:nbr:nberwo:11979

Note: AG EFG PE
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  1. 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, vol. 124(4), pages 1639-1674, November.
  2. Dhar, Ravi & Nowlis, Stephen M, 1999. " The Effect of Time Pressure on Consumer Choice Deferral," Journal of Consumer Research, University of Chicago Press, vol. 25(4), pages 369-84, March.
  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. John T. Gourville & Dilip Soman, 2005. "Overchoice and Assortment Type: When and Why Variety Backfires," Marketing Science, INFORMS, vol. 24(3), pages 382-395, July.
  5. 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.
  6. 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.
  7. 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, vol. 116(4), pages 1149-1187, November.
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Blog mentions

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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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Cited by:
  1. Daniel J. Benjamin & James J. Choi & A. Joshua Strickland, 2010. "Social Identity and Preferences," American Economic Review, American Economic Association, vol. 100(4), pages 1913-28, September.
  2. 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).
  3. James J. Choi & David Laibson & Brigitte C. Madrian, 2005. "$100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans," NBER Working Papers 11554, National Bureau of Economic Research, Inc.
  4. 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.
  5. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2006. "Simplification and Saving," NBER Working Papers 12659, National Bureau of Economic Research, Inc.
  6. John Beshears & James Choi & David Laibson & Brigitte Madrian, 2007. "How Are Preferences Revealed?," Levine's Bibliography 122247000000001760, UCLA Department of Economics.
  7. Annamaria Lusardi, 2008. "Financial Literacy: An Essential Tool for Informed Consumer Choice?," NBER Working Papers 14084, National Bureau of Economic Research, Inc.

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