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How Does 401(k) Auto-Enrollment Relate to the Employer Match and Total Compensation?

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  • Barbara A. Butrica
  • Nadia S. Karamcheva
Abstract
Many workers eligible for 401(k) plans fail to par­ticipate and those who do participate often save too little. In response, policy experts have advocated auto-enrollment, in which employees are signed up at a default contribution rate unless they opt out. Over the past decade, a number of employers have adopted auto-enrollment, and these policies have clearly boost­ed participation. But the effect of auto-enrollment on workers’ total 401(k) saving is unclear, because it depends partly on employer decisions about plan design and worker compensation. And these deci­sions could be affected by the increase in employ­ers’ 401(k) matching contributions generated by auto-enrollment. This brief, based on a recent paper, examines the relationship between auto-enrollment and employer decisions on matching contributions and overall compensation. The discussion proceeds as follows. The first sec­tion considers why and how auto-enrollment could af­fect these decisions. The second section discusses the data used in the analysis. The third section explores whether auto-enrollment is associated with employ­ers’ use of low match rates or low default employee contribution rates. The fourth section examines whether auto-enrollment is related to lower spend­ing on non-401(k) compensation or higher spending on total compensation. The final section concludes that auto-enrollment is associated with relatively low match rates and default rates, but does not affect wag­es or total compensation. This finding suggests that firms with auto-enrollment may offset higher 401(k) participation costs by trimming their per-participant contributions.

Suggested Citation

  • Barbara A. Butrica & Nadia S. Karamcheva, 2013. "How Does 401(k) Auto-Enrollment Relate to the Employer Match and Total Compensation?," Issues in Brief ib2013-14, Center for Retirement Research.
    • Handle: RePEc:crr:issbrf:ib2013-14
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    File URL: http://crr.bc.edu/briefs/how-does-401k-auto-enrollment-relate-to-the-employer-match-and-total-compensation/
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    Cited by:

    1. Annamaria Lusardi & Olivia S. Mitchell & Noemi Oggero, 2020. "Debt and Financial Vulnerability on the Verge of Retirement," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(5), pages 1005-1034, August.

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