The Impact of Automatic Enrollment on 401(k) Match Rates:

Automatic enrollment in employer retirement savings plans has received considerable attention recently since behavioral studies show that workers are more likely to participate in their employer’s plan if automatically enrolled. And increased participation means more workers likely will retire with some pension savings. However, our recent study “Will Automatic Enrollment Reduce Employer Contributions to 401(k) Plans? ” raised the question of how employers will pay for these additional compensation costs. Our paper offers three hypotheses: (1) firms leave pension and other compensation arrangements unchanged, thereby increasing total compensation paid to workers; (2) firms reduce nonpension compensation to keep total compensation at the same level before autoenrollment was introduced (for example, by reducing wages or other benefits); or (3) firms reduce the match offered to workers to offset the increase in costs. Using data from 2007 Form 5500 filings, we find some evidence to support the third hypothesis. Controlling for size, industry, and other characteristics, we find that employers with autoenrollment seem to have lower match rates than those without autoenrollment. While this result is intuitive to us and describes a seemingly rational response by profit-maximizing firms, we also explore other explanations. We do not, however, have information on how nonpension compensation might be changing, so for us to comment on the generosity of plan sponsors is impossible