The Impact of Employer Defaults and Match Rates on Retirement Saving

Abstract

This study evaluates the interaction between employer match and default rates on savings outcomes among new employees. Selecting a higher default rate has the largest impact on employee savings rates. Plans with low default rates that match a high percentage of employee earnings induce higher-income participants to actively move away from the low default savings rate, resulting in a wider savings gap between higher- and lower-income employees. When default savings rates are set higher, fewer employees move away from the default resulting in higher and more equal savings rates. Additionally, we find evidence that higher default savings rates increase usage of plan default investments.

Keywords: Defaults, defined contribution, retirement, employer match

JEL Classification: J26,D12,D14