Optimal Default Retirement Saving Policies: Theory and Evidence from OregonSaves

67 Pages Posted: 17 Feb 2020 Last revised: 21 Apr 2021

See all articles by Mingli Zhong

Mingli Zhong

National Bureau of Economic Research (NBER)

Date Written: April 16, 2021

Abstract

I theoretically analyze and empirically identify the optimal default savings rate in automatic enrollment retirement saving plans. I derive a formula for the optimal default as a function of sufficient statistics that can be empirically identified. I estimate individual adherence to the default using exogenous increases in the default rate of OregonSaves, the first state-sponsored auto-enrollment plan in the U.S. I also use survey data to infer the degree of undersaving if workers actively switch to a non-default rate. Combining estimates from administrative and survey data with the optimal default formula, I find the optimal default is 7% of income.

Keywords: OregonSaves, state-sponsored retirement plans, auto-enrollment retirement plans, default contribution rate

JEL Classification: D14, D60, D91, G51, H00

Suggested Citation

Zhong, Mingli, Optimal Default Retirement Saving Policies: Theory and Evidence from OregonSaves (April 16, 2021). Wharton Pension Research Council Working Paper No. 2020-01, Available at SSRN: https://ssrn.com/abstract=3535881 or http://dx.doi.org/10.2139/ssrn.3535881

Mingli Zhong (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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