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Recent automatic enrollment research

Recent automatic enrollment research. Steve Utkus Vanguard Center for Retirement Research May 2008 www.vanguard.com/retirementresearch. Two-part research agenda . Effectiveness research

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Recent automatic enrollment research

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  1. Recent automatic enrollment research Steve Utkus Vanguard Center for Retirement Research May 2008 www.vanguard.com/retirementresearch

  2. Two-part research agenda Effectiveness research • 50 plans (covering 120,000 eligible employees) adopting AE over 2000-2006 period, compared with over 500 plans with voluntary enrollment • Overwhelmingly AE for new hires only • 90%+ plans with initial contribution of 2-4%. Half with auto-escalate feature. • www.vanguard.com/retirementresearch. With Nessmith and Young at Vanguard. Literacy and trust research • Three employer plans with voluntary or automatic enrollment covering 9,500 new hires • Within this group, over 800 participated in survey on literacy and trust • With Agnew and Szykman at William and Mary. Paper at http://crr.bc.edu/

  3. Automatic enrollment – high-level benefits Participation rates Default investments (contributions) Source: Vanguard, 2007.

  4. Automatic enrollment – savings tradeoff Participant contribution rates Employee contribution rates Source: Vanguard, 2007.

  5. Automatic enrollment – demographic effects Participation rates by select demographic variables Source: Vanguard, 2007.

  6. Research results – voluntary enrollment plans Marginal effects on participation rates Source: Vanguard, 2007. * Not statistically significant.

  7. Research results – automatic enrollment plans Marginal effects on participation rates Source: Vanguard, 2007. * Not statistically significant.

  8. Implications • Opt-out savings regimes do improve savings outcomes dramatically, in keeping with default or framing effects. • These effects are strongest for groups who are traditionally associated with low rates of saving—especially young and low-wage workers. Yet the effects also appear among older and high-wage workers. • Both financial illiteracy and mistrust play a crucial role in raising quit rates under automatic enrollment. • Despite success of automatic enrollment, two issues remain: • Inadequacy of total contributions. 40% of plans have total savings < 9% • The problem of “quitters”

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