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

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Author Info
James Choi
David Laibson
Brigitte Madrian

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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 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

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Find related papers by JEL classification:
D0 - Microeconomics - - General
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions

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References listed on IDEAS
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.:
  1. James Choi & David Laibson & Brigitte Madrian & Andrew Metrick, 2005. "Optimal Defaults and Active Decisions," Levine's Bibliography 666156000000000488, UCLA Department of Economics. [Downloadable!]
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  2. Dhar, Ravi & Nowlis, Stephen M, 1999. "The Effect of Time Pressure on Consumer Choice Deferral," Journal of Consumer Research: An Interdisciplinary Quarterly, University of Chicago Press, vol. 25(4), pages 369-84, March.
  3. 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. [Downloadable!]
  4. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2001. "For Better or For Worse: Default Effects and 401(k) Savings Behavior," NBER Working Papers 8651, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  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, vol. 116(4), pages 1149-1187, November. [Downloadable!] (restricted)
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  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 2004-15, Center for Retirement Research. [Downloadable!]
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  1. 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. [Downloadable!]
    Other versions:
  2. Daniel J. Benjamin & James J. Choi & A. Joshua Strickland, 2007. "Social Identity and Preferences," NBER Working Papers 13309, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2006. "The Importance of Default Options for Retirement Savings Outcomes: Evidence from the United States," NBER Working Papers 12009, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2006. "Simplification and Saving," NBER Working Papers 12659, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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