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Institutional Affiliation: United Health Group
NBER Working Papers and Publications
|May 2000||The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior|
with Brigitte C. Madrian: w7682
In this paper, we analyze the 401(k) savings behavior of employees in a large U.S. corporation before and after an interesting change in the company 401(k) plan. Before the plan change, employees were required to affirmatively elect participation in the 401(k) plan. After the plan change, employees were automatically and immediately enrolled in the 401(k) plan unless they made a negative election to opt out of the plan. Although none of the economic features of the plan changed, this switch to automatic enrollment dramatically changed the savings behavior of employees. We have two key findings. First, 401(k) participation is significantly higher under automatic enrollment. Second, the default contribution rate and investment allocation chosen by the company under automatic enrollment has a...
Published: Madrian, Brigitte C. and Dennis F. Shea. "The Power Of Suggestion: Inertia In 401(k) Participation And Savings Behavior," Quarterly Journal of Economics, 2001, v116(4,Nov), 1149-1187. citation courtesy of