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Publication Date: October 2013
Publisher: Center for Retirement Research at Boston College
Author(s): Barbara Butrica; Nadia Karamcheva
Research Area: Economics
Keywords: Financing retirement; 401(k); Employer match; Compensation
Type: Report
Coverage: United States
Abstract:
Many workers eligible for 401(k) plans fail to parÂticipate and those who do participate often save too little. In response, policy experts have advocated auto-enrollment, in which employees are signed up at a default contribution rate unless they opt out. Over the past decade, a number of employers have adopted auto-enrollment, and these policies have clearly boostÂed participation. But the effect of auto-enrollment on workers’ total 401(k) saving is unclear, because it depends partly on employer decisions about plan design and worker compensation. And these deciÂsions could be affected by the increase in employÂers’ 401(k) matching contributions generated by auto-enrollment. This brief, based on a recent paper, examines the relationship between auto-enrollment and employer decisions on matching contributions and overall compensation.
The discussion proceeds as follows. The first secÂtion considers why and how auto-enrollment could afÂfect these decisions. The second section discusses the data used in the analysis. The third section explores whether auto-enrollment is associated with employÂers’ use of low match rates or low default employee contribution rates. The fourth section examines whether auto-enrollment is related to lower spendÂing on non-401(k) compensation or higher spending on total compensation. The final section concludes that auto-enrollment is associated with relatively low match rates and default rates, but does not affect wagÂes or total compensation. This finding suggests that firms with auto-enrollment may offset higher 401(k) participation costs by trimming their per-participant contributions.