Optimal defaults

of the Retirement Research Consortium (RRC). The findings and conclusions expressed are solely those of the authors and do not represent the views of SSA, any agency of the Federal Government, the RRC, or NBER. The authors thank Yeguang Chi for excellent research assistance and also acknowledge individual and collective financial support from the National Institute on Aging (grants R01-AG-021650 and T32-AG-000186). Prior research has demonstrated that defaults have a powerful influence on economic outcomes in a wide range of settings because individuals often passively accept default options. This paper examines the degree to which defaults become less powerful as they become more extreme. We study a firm with a defined contribution retirement savings plan in which employees are automatically enrolled at a 12 % contribution rate, a rate that is considerably higher than those studied in previous work. In addition, the default contribution rate is suboptimal for all employees because the firm only matches employee contributions between 12 % and 18 % of pay. Approximately one-quarter of employees at this firm remain at the default contribution rate after twelve months of tenure, while the comparable fraction for firms with more modest defaults i