Chapter

For Better or for Worse: Default Effects and 401(k) Savings Behavior

James J. Choi, David Laibson, Brigitte C. Madrian and Andrew Metrick

in Perspectives on the Economics of Aging

Published by University of Chicago Press

Published in print July 2004 | ISBN: 9780226903057
Published online February 2013 | e-ISBN: 9780226903286 | DOI: http://dx.doi.org/10.7208/chicago/9780226903286.003.0003
For Better or for Worse: Default Effects and 401(k) Savings Behavior

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Under automatic enrollment (also called negative election), employees are automatically enrolled in their company's 401(k) plan unless the employees elect to opt out of the plan. This contrasts with the usual arrangement in which employees must actively choose to participate in their employer's 401(k). This chapter evaluates the impact of automatic enrollment over a horizon of up to four years in three different companies. It analyzes data extending to four years after the adoption of automatic enrollment in a second company, and to three years after the adoption of automatic enrollment in a third company. Based on the Vanguard report and the Profit Sharing/401(k) Council of America survey data, the three companies have typical automatic enrollment programs. One of the companies has a default contribution rate of two percent and a stable value default fund, the second has a default contribution rate of three percent and a stable value default fund, and the third has a default contribution rate of three percent and a money market default fund.

Keywords: automatic enrollment; Vanguard report; Profit Sharing Council of America; default fund; money market; default contribution rate

Chapter.  15798 words.  Illustrated.

Subjects: Economics

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