Who is a Passive Saver Under Opt-In and Auto-Enrollment?

46 Pages Posted: 23 Jul 2019 Last revised: 4 Apr 2021

See all articles by Gopi Shah Goda

Gopi Shah Goda

Stanford University

Matthew Levy

London School of Economics & Political Science (LSE) - Department of Economics

Colleen Flaherty Manchester

University of Minnesota - Twin Cities - Center for Entrepreneurial Studies

Aaron Sojourner

University of Minnesota; IZA Institute of Labor Economics

Joshua Tasoff

Claremont Colleges - Claremont Graduate University

Multiple version iconThere are 2 versions of this paper

Date Written: July 2019

Abstract

Defaults have been shown to have a powerful effect on retirement saving behavior yet there is limited research on who is most affected by defaults and whether this varies based on features of the choice environment. Using administrative data on employer-sponsored retirement accounts linked to survey data, we estimate the relationship between retirement saving choices and individual characteristics – long-term discounting, present bias, financial literacy, and exponential-growth bias – under two distinct choice environments: an opt-in regime and an auto-enrollment regime. Consistent with our conceptual model, we find that the determinants of following the default and contribution behavior are regime-specific. Under the opt-in regime, financial literacy plays an important role in predicting total contributions, active saving choices, and maxing out contributions in the tax-preferred account. In contrast, under the auto-enrollment regime, present bias is the most significant behavioral predictor of contribution behavior. A causal interpretation of the estimates suggests that auto-enrollment increases saving primarily among those with low financial literacy.

Suggested Citation

Goda, Gopi Shah and Levy, Matthew and Flaherty Manchester, Colleen and Sojourner, Aaron J. and Tasoff, Joshua, Who is a Passive Saver Under Opt-In and Auto-Enrollment? (July 2019). NBER Working Paper No. w26078, Available at SSRN: https://ssrn.com/abstract=3423791

Gopi Shah Goda (Contact Author)

Stanford University ( email )

SIEPR
366 Galvez St.
Stanford, CA 94305
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6507360480 (Phone)

Matthew Levy

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Colleen Flaherty Manchester

University of Minnesota - Twin Cities - Center for Entrepreneurial Studies ( email )

United States

Aaron J. Sojourner

University of Minnesota ( email )

Carlson School of Management
321 19th Ave S, 3-300
Minneapolis, MN 55455
United States
6126249521 (Phone)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Joshua Tasoff

Claremont Colleges - Claremont Graduate University ( email )

150 E. Tenth Street
Claremont, CA 91711
United States

HOME PAGE: http://sites.cgu.edu/tasoffj/

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