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Automatic Enrollment, Employer Match Rates and Employee Compensation in 401(k) Plans

Author

Listed:
  • Butrica, Barbara A.

    () (Urban Institute)

  • Karamcheva, Nadia S

    () (Congressional Budget Office)

Abstract

This study uses restricted-access employer-level microdata from the National Compensation Survey to examine the relationship between automatic enrollment and employee compensation. By boosting plan participation, automatic enrollment has the potential to increase employer defined contribution plan costs as previously unenrolled workers receive matching contributions. Using cross-sectional variation in employer compensation costs and the automatic enrollment provision within firms sponsoring DC plans, we examine differences in compensation between those with and without the provision. A significant negative correlation exists between the generosity of the employer match structure and the automatic enrollment provision. However, we find no evidence that total compensation costs or DC costs differ between firms with and without automatic enrollment, and no evidence that DC costs crowd out other forms of compensation.

Suggested Citation

  • Butrica, Barbara A. & Karamcheva, Nadia S, 2015. "Automatic Enrollment, Employer Match Rates and Employee Compensation in 401(k) Plans," IZA Discussion Papers 8807, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp8807
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    References listed on IDEAS

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    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. Brady, Peter J., 2007. "Pension nondiscrimination rules and the incentive to cross subsidize employees," Journal of Pension Economics and Finance, Cambridge University Press, vol. 6(02), pages 127-145, July.
    3. Engelhardt, Gary V. & Kumar, Anil, 2007. "Employer matching and 401(k) saving: Evidence from the health and retirement study," Journal of Public Economics, Elsevier, vol. 91(10), pages 1920-1943, November.
    4. Keenan Dworak-Fisher, 2008. "Encouraging Participation in 401(k) Plans: Reconsidering the Employer Match," Working Papers 420, U.S. Bureau of Labor Statistics.
    5. Nadia Karamcheva & Geoffrey Sanzenbacher, 2010. "Is Pension Inequality Growing?," Issues in Brief ib2009-10-1, Center for Retirement Research, revised Jan 2010.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Jonathan Cribb & Carl Emmerson, 2016. "What happens when employers are obliged to nudge? Automatic enrolment and pension saving in the UK," IFS Working Papers W16/19, Institute for Fiscal Studies.

    More about this item

    Keywords

    automatic enrollment; defined contribution plan costs; employer match generosity; employee wage and non-wage compensation; firm behavior;

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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