Skip to main page content
U.S. flag

An official website of the United States government

Dot gov

The .gov means it’s official.
Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you’re on a federal government site.

Https

The site is secure.
The https:// ensures that you are connecting to the official website and that any information you provide is encrypted and transmitted securely.

Access keys NCBI Homepage MyNCBI Homepage Main Content Main Navigation
. 2013 Nov 1:95:130-145.
doi: 10.1016/j.jebo.2012.03.007.

Simplification and Saving

John Beshears  1 , James J Choi  2 , David Laibson  3 , Brigitte C Madrian  3
Affiliations

Simplification and Saving

John Beshears et al. J Econ Behav Organ. .

Abstract

The daunting complexity of important financial decisions can lead to procrastination. We evaluate a low-cost intervention that substantially simplifies the retirement savings plan participation decision. Individuals received an opportunity to enroll in a retirement savings plan at a pre-selected contribution rate and asset allocation, allowing them to collapse a multidimensional problem into a binary choice between the status quo and the pre-selected alternative. The intervention increases plan enrollment rates by 10 to 20 percentage points. We find that a similar intervention can be used to increase contribution rates among employees who are already participating in a savings plan.

PubMed Disclaimer

Figures

Figure 1
Figure 1. Savings plan participation rate by date, Company A seasoned employees
Participation in the savings plan is defined as having a positive before- or after-tax contribution rate. The sample is employees continuously employed by Company A and eligible for the savings plan from January 1, 2002 through December 31, 2005.
Figure 2
Figure 2. Savings plan enrollment rate by tenure, Company A new-hire cohorts
Each series represents employees hired between February and June of the year indicated, except for the 2006 series, which represent employees hired between March and June. Employees are dropped from the sample at a given tenure level if they are not eligible for the savings plan or have left the company.
Figure 3
Figure 3. Histogram of before-tax plus after-tax contribution rates 30 days after hire, Company A new-hire cohorts
Each series represents employees hired between February and June of the year indicated, except for the 2006 series, which represent employees hired between March and June. Non-participants are coded as contributing 0% of their salary but are not shown in this graph. Employees not eligible to participate in the plan within thirty days of hire are excluded from the sample.
Figure 4
Figure 4. Histogram of before-tax plus after-tax contribution rates, seasoned Company A employees
Each series represents the total contribution rate elections in effect on May 31, 2004 or October 31, 2004. Non-participants are coded as contributing 0% of their salary but are not shown in this graph. The sample is employees continuously employed by Company A and eligible for the savings plan from January 1, 2002 through December 31, 2005.
Figure 5
Figure 5. Average before-tax plus after-tax contribution rate by date, Company A
Non-participants are included in the average as contributing zero. The sample is employees who were actively employed by Company A and eligible to participate in the savings plan in a given month.
Figure 6
Figure 6. Savings plan enrollment rate among initially non-enrolled cohorts, Company B
Each cohort is the set of savings-plan-eligible employees who were not enrolled as of March 1, 2000 or February 1 of 2001, 2002, or 2003. Time since baseline is the number of months elapsed since March 1, 2000 or February 1 of 2001, 2002, or 2003. Employees are dropped from the sample at a given month if they have left the company.
Figure 7
Figure 7. Percent of participants below a 6% total contribution rate at the end of the prior month who move to a 6% total contribution rate this month, Company B
The sample in each month is restricted to employees eligible for the savings plan in that month who contributed a positive amount less than 6% of pay to the savings plan at the end of the previous month. The average number of employees with a positive total contribution rate below 6% in the previous month across the above range is 2,025.
Figure 8
Figure 8. Average before-tax plus after-tax contribution rate, Company B
The sample is employees continuously employed and eligible for the savings plan from August 2002 to December 2006.
See this image and copyright information in PMC

References

    1. Bettinger Eric P., Long Bridget Terry, Oreopolous Philip, Sanbonmatsu Lisa. The Role of Simplification and Information in College Decisions: Results from the H&R Block FAFSA Experiment. NBER Working Paper 15361. 2009
    1. Carroll Gabriel D., Choi James J., Laibson David, Madrian Brigitte C., Metrick Andrew. Optimal Defaults and Active Decisions. Quarterly Journal of Economics. 2009;124(4):1639–1674. - PMC - PubMed
    1. Choi James J., Laibson David, Madrian Brigitte C. Reducing the Complexity Costs of 401(k) Participation: The Case of Quick Enrollment. In: Wise David A., editor. Developments in the Economics of Aging. University of Chicago Press; Chicago: 2009. pp. 57–82.
    1. Choi James J., Laibson David, Madrian Brigitte C. Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds. Review of Financial Studies. 2010;23(4):1405–1432. - PMC - PubMed
    1. Choi James J., Laibson David, Madrian Brigitte C., Metrick Andrew. Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance. In: Poterba James., editor. Tax Policy and the Economy. Vol. 16. 2002. pp. 67–114.

LinkOut - more resources