Automatic Enrollment with a 12% Default Contribution Rate / John Beshears, Ruofei Guo, David Laibson, Brigitte C. Madrian, James J. Choi.

Format:

Book

Author/Creator:

Beshears, John.

Contributor:

National Bureau of Economic Research.

Guo, Ruofei.

Laibson, David.

Madrian, Brigitte C.

Choi, James J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w31601.

NBER working paper series no. w31601

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2023.

Summary:

We study a retirement savings plan with a default contribution rate of 12% of income, which is much higher than previously studied defaults. Twenty-five percent of employees had not opted out of this default 12 months after hire; a literature review finds that the corresponding fraction in plans with lower defaults is approximately one-half. Because only contributions above 12% were matched by the employer, 12% was likely to be a suboptimal contribution rate for employees. Employees who remained at the 12% default contribution rate had average income that was approximately one-third lower than would be predicted from the relationship between salaries and contribution rates among employees who were not at 12%. Defaults may influence low-income employees more strongly in part because these employees face higher psychological barriers to active decision making.

Notes:

Print version record

August 2023.