Smaller than We Thought? The Effect of Automatic Savings Policies

By: James J. Choi, David Laibson, Jordan Cammarota, Richard Lombardo and John Beshears

Format:Print
| Language:English
| Pages:60

Abstract

Medium- and long-run dynamics undermine the effect of automatic enrollment and default savings-rate auto-escalation on retirement savings. Our analysis of 401(k) plans incorporates the facts that employees frequently leave firms (often before matching contributions have fully vested), a large percentage of balances are withdrawn upon employment separation, and many employees opt out of default auto-escalation. Across nine natural experiments, steady-state saving rates increase by 0.6% of income due to automatic enrollment and 0.2% of income due to default auto-escalation. Only 43% of employees in 21 401(k) plans in our data with default auto-escalation actually escalate on their first auto-escalation date.