How Simplifying 401k Enrollment Increased Participation by 300%
Abstract
Saving for retirement can be a tiresome, confusing, and overwhelming experience for many — so much so that many people forgo investing in retirement planning altogether. According to the Federal Reserve, merely half of all household have any retirement accounts at all.1 While the most effective mechanism of getting people to save and enroll in a 401(k) savings plan at work remains the automatic-enrollment approach — an opt-out tactic whose participation effect is so large that it typically induces near-universal participation — it faces significant backlash. It’s seen by some as coercive in the sense that it locks individuals into a company-chosen contribution rate (often seen as too low) and asset allocation (often seen as too conservative).1
Researchers examined an alternative to the common automatic-enrollment option used to boost 401(k) participation, Quick Enrollment (QE). They tested to see if this option, which offers employees the choice to opt-in and enroll in the savings plan — by selecting an employer-generated default contribution rate and pre-selected asset allocation — would make retirement saving less complicated and seemingly coercive. They found that implementing the QE option proved effective in increasing participation rates — it tripled participation among newly hired employees relative to the standard active decision approach.
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