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Tuesday, May 7, 2019 at 11:40am to 1:10pm
Statler Hall, Amphitheater in the Statler Hotel
7 East Ave, Ithaca, NY 14850, USA
John Beshears - Harvard Business School
Potential vs. Realized Savings under Automatic Enrollment
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’ pre-retirement withdrawal decisions 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 five firms introducing automatic enrollment between 2005 and 2010. Comparing employees hired in the twelve months after the introduction of automatic enrollment to those hired in the twelve months prior, we find that automatic enrollment increases total potential retirement system balances by 3.2-17.5% of starting pay 84 months 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 0.9-3.8% of starting pay, offsetting between 5.3-47.3% of the potential increase in savings from automatic enrollment. The net effect is that automatic enrollment increases retirement system balances by 1.7-16.5% of first year pay 84 months after hire.