The Academy of Financial Services 35th Annual Meeting

Retirement Financial Planning, 401k Saving, Auto-deferral Rate, Employer Match

Encouraging DC participants to save more for retirement is a common goal among financial advisors and retirement plan sponsors. In this study, we explore how various factors affected participant saving decisions. Using a data set of approximately 156,000 participants who recently enrolled in an employer-matched 401(k) plan, we find that increasing the default deferral rate (as part of an automatic enrollment scheme) can significantly improve retirement savings. In other words, for plan sponsors interested in increasing participant deferral rates without changing the existing employer contribution structure, simply increase the default savings rate seems like a relatively powerful and straightforward way to accomplish this objective. This study disentangles the impacts of two most commonly discussed factors that can potentially increase participant’s retirement savings rate: Automatic deferral rate and employer contributions. Other factors that are significantly associated with participant’s saving decisions include age, salary, equity percentage, maximum employer match rate, etc.