Diversity and Defined Contribution Plans: The Role of Automatic Plan Features
15 Pages Posted: 17 Nov 2011
Date Written: September 1, 2011
In a sample of seven large defined contribution (DC) plans, automatic enrollment reduces differences in savings and investment behavior associated with race and ethnicity. Participation rates rise across the board with automatic enrollment, but particularly for blacks and Hispanics. Automatically enrolled whites and Asians are more likely to override the default deferral rate than blacks and Hispanics, leading to a difference in deferral rates. Automatic enrollment to a default target-date fund equalizes risk-taking and reduces extreme portfolio allocations for all groups.
Keywords: 401K, savings, portfolio allocation, race, ethnicity
JEL Classification: J26
Suggested Citation: Suggested Citation