For Better or For Worse: Default Effects and 401(k) Savings Behavior
In the last several years, many employers have decided to automatically enroll their new employees in the company 401(k) plan. Using several years of administrative data from three large firms, we analyze the impact of automatic enrollment on 401(k) participation rates, savings behavior, and asset accumulation. We find that although employees can opt out of the 401(k) plan, few choose to do so. As a result, automatic enrollment has a dramatic impact on retirement savings behavior: 401(k) participation rates at all three firms exceed 85%, but participants tend to anchor at a low default savings rate and in a conservative default investment vehicle. We find that initially, about 80% of participants accept both the default savings rate (2% or 3% for our three companies) and the default investment fund (a stable value or money market fund). Even after three years, half of the plan participants subject to automatic enrollment continue to contribute at the default rate and invest their contributions exclusively in the default fund. The effects of automatic enrollment on asset accumulation are not the default fund. The effects of automatic enrollment on asset accumulation are not savings rate and the conservative default investment fund undercut accumulation. In our sample, these two effects are roughly offsetting on average. However, automatic enrollment does increase saving in the lower tail of the savings distribution by dramatically reducing the fraction of employees who do not participate in the 401(k) plan.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||08 Jan 2002|
|Contact details of provider:|| Postal: Harris Graduate School of Public Policy Studies, 1155 E. 60th Street Chicago, IL 60637|
Web page: http://www.jcpr.org/wp/ByDate.html
More information through EDIRC
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.:
- James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2001.
"Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance,"
NBER Working Papers
8655, National Bureau of Economic Research, Inc.
- James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2002. "Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance," JCPR Working Papers 257, Northwestern University/University of Chicago Joint Center for Poverty Research.
- Sendhil Mullainathan & Richard H. Thaler, 2000. "Behavioral Economics," NBER Working Papers 7948, National Bureau of Economic Research, Inc.
- James M. Poterba & Steven F. Venti, 1998. "Lump-Sum Distributions from Retirement Saving Plans: Receipt and Utilization," NBER Chapters,in: Inquiries in the Economics of Aging, pages 85-108 National Bureau of Economic Research, Inc.
- James M. Poterba & Steven F. Venti & David A. Wise, 1995. "Lump-Sum Distributions from Retirement Saving Plans: Receipt and Utilization," NBER Working Papers 5298, National Bureau of Economic Research, Inc.
- Brigitte C. Madrian & Dennis F. Shea, 2001. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1149-1187.
- Brigitte C. Madrian & Dennis F. Shea, 2000. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," NBER Working Papers 7682, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:wop:jopovw:256. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)
If references are entirely missing, you can add them using this form.