Smaller than We Thought? The Effect of Automatic Savings Policies
Working Paper 32828
DOI 10.3386/w32828
Issue Date
Medium- and long-run dynamics undermine the effect of automatic enrollment and default savings-rate auto-escalation on retirement savings. Our analysis of nine 401(k) plans incorporates the facts that employees frequently leave firms (often before matching contributions from their employer have fully vested), a large percentage of 401(k) balances are withdrawn upon employment separation, and many employees opt out of auto-escalation. Steady-state saving rates increase by 0.6% of income due to automatic enrollment and 0.3% of income due to default auto-escalation. Only 40% of those with an auto-escalation default escalate on their first escalation date, and more opt out later.
Non-Technical Summaries
- Automatic enrollment and automatic contribution escalation in retirement savings plans have become increasingly prevalent in the United...
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