Keywords

automatic enrollment, retirement savings, preretirement withdrawals

Abstract

Employer adoption of automatic enrollment can dramatically increase retirement savings plan participation. However, many savings plan participants withdraw some, or even all, of their accumulated balances prior to reaching retirement. The extent to which individuals’ preretirement withdrawal decisions, sometimes months or even years after they have been automatically enrolled, offset the increased savings induced by automatic enrollment is an open question. We explore this issue by studying the evolution of retirement savings outcomes over time for the employees at a large firm that introduced automatic enrollment in 2005. Comparing employees hired in the 12 months after the introduction of automatic enrollment to those hired in the 12 months prior, we find that automatic enrollment increases total potential retirement system balances by 7% of starting pay eight years after hire; at the same time, leakage in the form of outstanding loans and withdrawals that are not rolled over into another qualified savings plan also increase by 3% of starting pay, offsetting approximately 40% of the potential increase in savings from automatic enrollment. The net effect is that automatic enrollment increases retirement system balances by 4-5% of first year pay eight years after hire. These results mask substantial differences across those who remain employed at the firm versus those who separate. Among those who remain employed, leakage offsets relatively little of the incremental savings generated by automatic enrollment at low levels of tenure.

Original Publication Citation

“Potential vs. Realized Savings under Automatic Enrollment.” 2018. TIAA Institute Research Dialogue, Issue No. 148, July 2018 (with John Beshears, James J. Choi and David Laibson). https://www.tiaainstitute.org/sites/default/files/presentations/2018-07/Potential%20vs%20Realized%20Savings_Beshears_July%202018.pdf

Document Type

Working Paper

Publication Date

2018

Publisher

TIAA Institute Research Dialogue

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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