The Evolution of 401(k) Balances Under Automatic Enrollment

John Beshears, James Choi, David Laibson, Brigitte Madrian

NBER Retirement Research Center Paper No. NB 15-05
Issued in September 2015

Automatic enrollment in a 401(k) plan can lead many employees to have higher plan contribution rates. However, many households who have defined contribution plan balances withdraw funds prior to reaching retirement age. It is an open question whether households’ pre-retirement withdrawal decisions months or years after they have experienced automatic enrollment offset any increase in plan balances induced by automatic enrollment. We explore this issue by studying a 401(k) plan that introduced automatic enrollment in 2005. Comparing employees hired in the year after the introduction to employees hired in the prior year, we find that pre-retirement withdrawals only partially offset the impact of automatic enrollment. Cumulative withdrawals five years after hire are higher under automatic enrollment by more than one percentage point of starting salary, but plan balances are nonetheless higher by six percentage points of starting salary.

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