Automatic enrollment, employer match rates, and employee compensation in 401(k) plans

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. This study uses restricted-access employer-level microdata from the National Compensation Survey to examine the relationship between automatic enrollment and employee compensation. By boosting plan participation, automatic enrollment has the potential to increase employer defined contribution plan costs as previously unenrolled workers receive matching contributions. Using cross-sectional variation in employer compensation costs and the automatic enrollment provision within firms sponsoring DC plans, we examine differences in compensation between those with and without the provision. A significant negative correlation exists between the generosity of the employer match structure and the automatic enrollment provision. However, we find no evidence that total compensation costs or DC costs differ between firms with and without automatic enrollment, and no evidence that DC costs crowd out other forms of compensation.JEL Classification: J26, J31, J32

Automatic enrolment in pension systems: The experience of New Zealand, Italy, and the UK

“…Finally, I find that, while OLS estimates based on pooled cross-sectional samples point towards heterogenous effects of auto-enrollment, depending on plan type, FE estimates generally indicate positive and significant effects. This finding suggests that a complementarity -rather than a trade-off -may be at work between these key 401(k) plan design features, and is in stark contrast with the evidence provided so far in the literature (Soto and Butrica, 2009;Butrica and Karamcheva, 2015).…”

“…The evidence available so far suggests that the success of automatic enrollment at increasing participation does not appear to rely much on having an employer match (Beshears, Choi, Laibson, and Madrian, 2010), and that there is a negative relationship between between the employer decision to adopt automatic enrollment and the generosity of the employer match (Soto and Butrica, 2009;Butrica and Karamcheva, 2015).…”

“…The second issue I address is how automatic enrollment affects average employer match rates. Using cross-sectional data, Soto and Butrica (2009) and Butrica and Karamcheva (2015) suggest that plans with automatic enrollment have lower (by 7-8 percentage points) match rates. However, these studies do not address the potential auto-enrollment endogeneity that could confound the estimates.…”

What happens when employers are obliged to nudge? Automatic enrolment and pension saving in the UK

“…Butrica and Karamcheva (2015) find in a cross-section of US private sector pension funds that, controlling for a set of firm and plan characteristics, employer match rates are 0.38 percentage points (11%) lower under automatic enrolment. On the other hand, Andrietti (2015) uses plan-level panel data and finds a positive association between automatic enrolment and employer match rates.…”

“…In many cases, these firms have introduced automatic enrolment to comply with the Internal Revenue Service's non-discrimination rules 2 (see Choi et al (2002) and Butrica and Karamcheva (2015)). …”