Will Automatic Enrollment Reduce Employer Contributions to 401(K) Plans?
Posted: 3 Mar 2010
Date Written: December 1, 2009
Many employers match employee contributions to 401(k) plans. However, the employer cost of continuing this practice may increase rapidly as trends towards automatic enrollment boost employee participation. This paper examines the relationship between employer matching behavior and automatic enrollment. Using a sample of large 401(k) plans, we find that match rates are about 7 percentage points lower among firms with automatic enrollment than among those without automatic enrollment, even controlling for firm characteristics. So while auto-enrollment increases the number of workers participating in private pensions, our findings suggest it might also reduce the level of pension contributions.
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