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Academy of Financial Services Annual Meeting 2022

September 27–28, 2022

Virtual Conference via Zoom

Saving More with Less: The Impact of Employer Defaults and Match Rates on Retirement Saving

Tuesday, September 27, 2022 at 1:00 PM–1:55 PM EDT add to calendar

Retirement Financial Planning, 401(k) Savings, Financial Decision Making

Short Description

Employers control two primary levers that can motivate retirement saving among defined contribution plan participants – default savings rates and match rates. Setting a higher default savings rate can increase plan contributions among passive savers who accept the default. A higher match rate incentivizes active savers to increase contributions. This study uses a large sample of defined contribution participants to estimate the interaction between employer match and default rates on savings outcomes among new employees. Selecting a higher default rate has the largest impact on employee savings rates. Plans with low default rates that match a high percentage of employee earnings induce higher-income participants to actively move away from the low default savings rate, resulting in a wider savings gap between higher- and lower-income employees. When employees are defaulted in at a higher rate, fewer move away from the default savings rate resulting in higher and more equal savings rates among employees.

Lead & Corresponding Author

Zhikun Liu, Employee Benefit Research Institute