Smaller than We Thought? The Effect of Automatic Savings Policies

July 21, 2024, Paper: "Medium- and long-run dynamics undermine the effect of automatic enrollment and default savings-rate auto-escalation on retirement savings. Our analysis of nine 401(k) plans incorporates the facts that employees frequently leave firms (often before matching contributions from their employer have fully vested), a large percentage of 401(k) balances are withdrawn upon employment separation, and many employees opt out of auto-escalation. Steady-state saving rates increase by 0.6% of income due to automatic enrollment and 0.2% of income due to default auto escalation. Only 39% of those with an auto-escalation default escalate on their first escalation date, and more opt out later."