Carroll, G., Choi, J., Laibson, D., Madrian, B., & Metrick, A. (2009). Optimal defaults and active decisions. The Quarterly Journal of Economics, 124(4).
- The study examined the impact of requiring employees to actively decide whether to enroll in a 401(k) plan, called active-decision enrollment, on newly hired employees’ 401(k) enrollment decisions and contribution rates at a large U.S.-based company. Active-decision enrollment was compared with standard enrollment, which required employees to opt in to a 401(k) plan.
- The analysis was based on administrative data on enrollment in and contributions to a retirement plan. The study analyzed changes in outcomes before and after the change from active-decision to standard enrollment.
- The study found that requiring employees to actively opt in or out of savings plans increased 401(k) participation and contribution rates, compared with standard enrollment. The study also found that employees who participated in the 401(k) plan under the active-decision enrollment policy contributed less, on average, than participants under standard enrollment.
- The quality of causal evidence presented in this report is low. This means we are not confident that the estimated effects are attributable to the company’s active-decision enrollment policies. Other factors are likely to have contributed.
Active-Decision 401(k) Enrollment
- The study found that the average 401(k) enrollment rate for employees three months after hire in the active-decision cohort was 28 percentage points higher than for the standard enrollment group. This difference fell to 17 percentage points when employees had been at the firm for 24 months and 5 percentage points when they had achieved 42 months of tenure (the differences remained statistically significant).
- Under active-decision enrollment, new employees contributed 1.2 percentage points more of their income, on average, after nine months of tenure than new employees under the standard enrollment scheme.
- Among 401(k) participants only, the contribution rate of the active-decision group was lower than that of the standard enrollment group until employees had reached 40 months of tenure.
Considerations for Interpreting the Findings
The change from active-decision to standard enrollment was implemented only once and at a single company. This makes it difficult to conclude that the observed changes in enrollment and contribution rates were driven by the change in enrollment regime itself, instead of other concurrent changes (for example, changes in market conditions).
Causal Evidence Rating
The quality of causal evidence presented in this report is low because it examined only a single implementation of an intervention. This means that we are not confident that the estimated effects are attributable to the change in 401(k) enrollment regime. Other factors are likely to have contributed. To provide more convincing evidence of the intervention’s effects that satisfies Clearinghouse for Labor Evaluation and Research (CLEAR) criteria, the authors should consider implementing active-decision enrollment at other firms currently using standard enrollment. If other implementations demonstrated similar effects and more data were used to show such effects, we could be more confident that changes in outcomes were driven by the intervention, and not some other concurrent change.