Mechanisms Behind Retirement Saving Behavior: Evidence From Administrative and Survey Data

February 2018

Procrastination keeps employees at the default contribution rate, but only in “opt-out” plans.


Retirement plan defaults are known to strongly influence saving behavior, but few studies have identified what causes these effects. This research fills the void by linking administrative data from an employer-sponsored retirement plan to survey data measuring financial knowledge and individual characteristics. In particular, the authors examine how procrastination and financial literacy, including understanding of exponential growth, impact saving decisions in a large defined contribution plan under both “opt-in” and “opt-out” participation conditions.

Key Insights
People who tend to procrastinate are more likely to stay at the default contribution rate under automatic enrollment.
Low financial understanding increases the likelihood of remaining at the effective 0% default contribution rate in an opt-in plan.
Non-procrastinators on average save more than other employees and are more likely to maximize their employer match.
Tools and advice designed to help participants make saving decisions may need to account for the plan’s default participation status.

The researchers examined contribution rates of 5,472 employees at the U.S. Office of Personnel Management, which began using automatic enrollment in its defined contribution plan on August 1, 2010; employees hired before that date had to opt in to participate in the plan. The researchers also fielded an online survey with the same employees to measure procrastination tendencies and financial knowledge, and 1,585 people (29%) provided complete responses on the measures of interest.