Impact of automatic enrollment on retirement savings examined in new study

Reasons for sticking with the default contribution rate differ based on whether employees opt in or opt out of retirement savings program
NEW YORK, February 28, 2018 – A study released today by the TIAA Institute found that different behaviors drive savings decisions for participants in opt-in versus opt-out retirement plans. In plans where employees are automatically enrolled (“opt-out” plans), procrastination plays a key role in explaining who remains at the default contribution rate. However, in plans where employees must opt in, a lack of financial literacy and understanding of exponential growth account for remaining at the default.
The study, “Mechanisms Behind Retirement Saving Behavior: Evidence From Administrative and Survey Data,” analyzed data from 5,472 employees of the U.S. Office of Personnel Management, which implemented automatic enrollment in 2010. A survey of 1,585 of these employees was used to determine procrastination tendencies, basic financial literacy, and understanding of exponential growth and compound interest.

The study identified the behaviors that influence employees’ decisions regarding their retirement plans -- a discovery with important implications for policy and developing employer retirement programs. In opt-in plans, efforts to get employees to increase their savings above the default rate are likely to be fruitful if they focus on improving financial literacy and understanding of exponential growth. While in automatic enrollment environments, efforts targeted at procrastination tendencies are likely to be particularly effective.

“This study provides critical information on what drives employee behavior when it comes to retirement savings decisions,” Stephanie Bell-Rose, Head of the TIAA Institute. “It is important that we understand why employees make different decisions based on default provisions in retirement plans, so employers can make the best choices for the well-being of their employees.”

“While we have known for some time that retirement saving decisions are driven by defaults, it is equally important to understand how and why they influence behavior,” said researcher Gopi Shah Goda of Stanford University. “Our study sheds light on the underlying mechanisms and provides evidence that procrastination tendencies, financial literacy and the understanding of compound interest are at play, but the precise channel depends on the underlying default choice offered to participants. These findings inform how employers can design retirement plans and suggest that mitigating procrastination can have large implications for retirement saving decisions.”

The full report can be found here.

About the TIAA Institute

The TIAA Institute helps advance the ways individuals and institutions plan for financial security and organizational effectiveness. The institute conducts in-depth research, provides access to a network of thought leaders, and enables those it serves to anticipate trends, plan future strategies and maximize opportunities for success. For more information about the TIAA Institute, visit
About TIAA

TIAA ( is a unique financial partner. TIAA is the leading provider of financial services in the academic, research, medical, cultural and government fields. TIAA has $1 trillion in assets under management (as of 12/31/2017) and offers a wide range of financial solutions, including investing, banking, advice and education, and retirement services.
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