Default Contribution Rates and Participation in Automatic IRAs by Uncovered Workers

Anek Belbase and Geoffrey Sanzenbacher
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Anek Belbase: Center for Retirement Research at Boston College

The Geneva Papers on Risk and Insurance - Issues and Practice, 2017, vol. 42, issue 3, No 2, 376-388

Abstract: Abstract About half of workers are not covered by a retirement plan at work and these workers are unlikely to save for retirement. For this reason, a number of states have passed legislation that will require employers to automatically enroll their employees into an IRA sponsored by the state (an “auto-IRA”) and administered by a third party. An extensive literature suggests that automatic enrollment will lead to high rates of participation in auto-IRAs. But this literature is based on auto-enrolled 401(k) participants who are likely different from uncovered workers in observable and unobservable ways. This paper instead conducts a national survey of uncovered workers to determine how likely they are to participate in a state-sponsored IRA. The results are encouraging and suggest that uncovered workers are likely to participate at rates similar to those in 401(k) plans at default contribution rates of up to 6 per cent. However, regression analysis suggests that auto-escalation of the default above 6 per cent may result in increased opt-out.

Keywords: auto-enrollment; uncovered workers; automatic IRAs (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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DOI: 10.1057/s41288-017-0047-2

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