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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
Zoom
Keywords

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
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