401(k) auto-enrollment features don’t help savings as much as expected, study finds

cnbc.com:

Employers are increasingly putting workers' 401(k) plan savings on autopilot.

But the positive impact of automated retirement savings is more muted than initially thought, new research finds.

Previously «underexamined» factors — like workers cashing out 401(k) balances when they leave a job — «meaningfully reduce» the long-term impact of policies like automatic enrollment and automatic escalation, according to a new paper published by the National Bureau of Economic Research.

Importantly, some of the paper's co-authors — James Choi of Yale University, and David Laibson and John Beshears of Harvard University — are behavioral economists who pioneered early research into the positive effects of automatic enrollment.

«They are like the OGs [originals],» said David Blanchett, head of retirement research at PGIM, an investment manager. «These are the people who've been doing research on this topic now for decades.»

Automated savings has been a cornerstone of 401(k) policy since Congress passed the Pension Protection Act of 2006.

Policies like auto-enrollment and auto-escalation aim to boost the size of employees' nest eggs, by automatically enrolling workers in their company 401(k) and then raising (or «escalating») their savings rate over time.

In this way, people's tendency towards inertia works in their favor.

About two-thirds of 401(k) plans were using auto-enrollment as of 2022, according to survey data from the Plan Sponsor Council of America, a trade group. Of them, 78% used auto-escalation.

Overall, their effect on savings is positive, «just not as positive as we had previously thought based on the research we had done before,» Choi said in an interview.

The group's initial research didn't track results for workers