Keywords

default effects, 401(k) participation, automatic enrollment

Abstract

Default options have an enormous impact on household choices. Such effects have now been extensively documented in the literature on 401(k) plans (Madrian and Shea 2001; Choi et al. 2002b, 2004). Defaults have been shown to affect participation, savings rates, rollovers, and asset allocation. For example, Choi et al. (2004) study three firms that use automatic enrollment. When employees at these firms are automatically enrolled in their 401(k) plan, only a tiny fraction opt out, producing participation rates exceeding 85 percent regardless of tenure. But when employees at these firms were not automatically enrolled, participation rates were significantly lower, ranging from 26 percent to 43 percent after six months of tenure, and from 57 percent to 69 percent after three years of tenure.

Original Publication Citation

“Passive Decisions and Potent Defaults.” 2005. In David A. Wise, editor, Analyses in the Economics of Aging, Chicago: University of Chicago Press, pp. 59-73 (with James Choi, David Laibson and Andrew Metrick). http://www.nber.org/chapters/c10357.pdf

Document Type

Peer-Reviewed Article

Publication Date

2005

Publisher

University of Chicago Press

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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