NCPA - National Center for Policy Analysis


December 27, 2004

Americans would save more money if the mechanics of retirement programs were changed, says Daniel Gross writing in the New York Times.

Research suggests that more employees choose to save when enrollment into 401(k) programs is automatic (although they can opt out) than when enrollment is optional.

In a study of four companies that switched the way they pitched 401(k) plans to employees, economists found:

  • When employees were offered the option of signing up for a 401(k) upon hiring, participation rates after six months ranged from 25 to 43 percent.
  • When the companies instituted default enrollment, participation rates were 86 to 90 percent.

What explains these differences? Gross says that when companies offer default enrollment it is seen by employees as a sort of endorsement. Also, employees have to invest time and effort to opt out of (or in to) a program.

Source: Daniel Gross, "Economic View: Building a Nation of Savers," New York Times, December 19, 2004.

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