Chapter | Research Findings in the Economics of Aging | 2010

The Impact of Employer Matching on Savings Plan Participation under Automatic Enrollment

by John Beshears, James J. Choi, David Laibson and Brigitte C. Madrian

Abstract

Existing research has documented the large impact that automatic enrollment has on savings plan participation. All the companies examined in these studies, however, have combined automatic enrollment with an employer match. This raises a question about how effective automatic enrollment would be without a direct financial inducement not to opt out of participation. This paper's results suggest that the match has only a modest impact on opt-out rates. We estimate that moving from a typical matching structure—a match of 50% up to 6% of pay contributed—to no match would reduce participation under automatic enrollment at six months after plan eligibility by 5 to 11 percentage points. Our analysis includes a firm that switched from a match to a noncontingent employer contribution. This firm's experience suggests that non-contingent employer contributions only weakly crowd out employee participation.

Keywords: Motivation and Incentives; Consumer Behavior; Personal Finance; Investment Funds; Microeconomics; Compensation and Benefits;

Citation:

Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian. "The Impact of Employer Matching on Savings Plan Participation under Automatic Enrollment." In Research Findings in the Economics of Aging, edited by David A. Wise, 311–327. Chicago: University of Chicago Press, 2010.