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Abstract

This project examines how employer-provided financial education for newly hired workers affects participation in retirement savings plans. The investigators partnered with six large employers to explore what financial education is currently offered to new hires. Each employer provided individual data on workers hired in 2008 and 2009. This report assesses the impact of information and delivery methods on participation and contribution rates. Several findings emerge. There is strong evidence that employees respond to match incentives. Therefore, the date when the employer match begins should be an important "teachable moment" for employers to reach out to employees. The investigators found that auto-enroll programs do increase retirement savings plan participation. Moreover, there is little decay in the participation rates over time. However, workers who were automatically enrolled have contribution rates that are concentrated at the default level and therefore many workers who were automatically enrolled are not taking full advantage of the employer match. The researchers also found that opt-in plans have lower enrollment rates for lower-income, younger, and female workers. However, among the employers using an opt-out default there are no significant differences in plan participation between these groups. Finally, there is some suggestive evidence that for workers hired during the time period when the stock market was at its lowest point, plan participation was not only initially lower but is still lower today. The research thus far provides important insights into the role of defaults and information in workers' decisions to participate in voluntary retirement savings plans.

The research described in this report was prepared for the Social Security Administration and conducted by the Financial Literacy Center.

This report is part of the RAND Corporation working paper series. RAND working papers are intended to share researchers' latest findings and to solicit informal peer review. They have been approved for circulation by RAND but may not have been formally edited or peer reviewed.

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