Worker and Spousal Responses to Automatic Enrollment

Abstract

This paper estimates the saving effects of automatically enrolling employees in retirement plans, examining a large set of firms and incorporating savings responses beyond employer-sponsored plans. We construct an original data set - using tax returns, payroll filings, and retirement distributions from information returns - for employees at 751 US-based firms that adopted automatic enrollment between 2010 and 2016. We use these data estimate the effects of the policy on retirement plan contributions, withdrawals, and net retirement savings - for both employees and their spouses - by comparing workers hired in the years before and after each firm adopted automatic enrollment. We estimate that in the first year after hiring, automatic enrollment increases plan participation by approximately 80 percent (36 percentage points) and increases retirement savings contributions (as a percent of wages) by about 50 percent (1.2 percentage points). Spouses of employees at these firms do not alter their saving behavior in response to the policy, and employees do not alter IRA contributions. However, automatic enrollment also increases the likelihood that an employee will take a withdrawal from their retirement account by 35 percent (4 percentage points). This effect is driven by employees who take withdrawals when separating from their employer. We find that savings effects are increasing in wages - with the lowest wage quintile increasing savings at roughly one-quarter the level of the top quintile - consistent with the "percent of compensation" structure of default contributions. In the medium run (after three years) the effects dissipate but remain discernible from the control group.

Keywords: Retirement saving, automatic enrollment, nudge

JEL Classification: H24, H31, D14, G51