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Reducing the Complexity Costs of 401(k) Participation Through Quick Enrollment(TM)

James Jinwoo Choi, David Isaac Laibson () and Brigitte C. Madrian

No 11979, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The complexity of the retirement savings decision may overwhelm employees, encouraging procrastination and reducing 401(k) enrollment rates. We study a low-cost manipulation designed to simplify the 401(k) enrollment process. Employees are given the option to make a Quick Enrollment(TM) election to enroll in their 401(k) plan at a pre-selected contribution rate and asset allocation. By decoupling the participation decision from the savings rate and asset allocation decisions, the Quick Enrollment(TM) mechanism simplifies the savings plan decision process. We find that at one company, Quick Enrollment(TM) tripled 401(k) participation rates among new employees three months after hire. When Quick Enrollment(TM) was offered to previously hired non-participating employees at two firms, participation increased by 10 to 20 percentage points among those employees affected.

JEL-codes: D0 E21 G23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-mac
Date: 2006-01
Note: AG EFG PE
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