Worker and Spousal Responses to Automatic Enrollment

72 Pages Posted: 11 Mar 2022

See all articles by Elena Derby

Elena Derby

Government of the United States of America - Joint Committee on Taxation

Kathleen Mackie

Joint Committee on Taxation

Jacob Mortenson

Government of the United States of America - Joint Committee on Taxation

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: Keywords: Retirement saving, automatic enrollment, nudge

Suggested Citation

Derby, Elena and Mackie, Kathleen and Mortenson, Jacob, Worker and Spousal Responses to Automatic Enrollment. Available at SSRN: https://ssrn.com/abstract=4055248 or http://dx.doi.org/10.2139/ssrn.4055248

Elena Derby (Contact Author)

Government of the United States of America - Joint Committee on Taxation ( email )

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Kathleen Mackie

Joint Committee on Taxation ( email )

Room 1625 Longworth House Office Building
Washington, DC 20515
United States

Jacob Mortenson

Government of the United States of America - Joint Committee on Taxation ( email )

Room 1625 Longworth House Office Building
Washington, DC 20515
United States

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