How Does 401(k) Auto-Enrollment Relate to the Employer Match and Total Compensation?

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This study uses restricted microdata from the National Compensation Survey to examine the impact of auto-enrollment on employee compensation. By boosting plan participation, automatic enrollment likely increases employer costs as previously unenrolled workers receive matching retirement plan contributions. Employers might respond to this surge in retirement plan costs by trimming match rates to 401(k) plans or by lowering other types of compensation.nWe find that employer match rates are negatively and significantly correlated with auto-enrollment. Not only do employers with auto-enrollment have lower potential match rates than those without, but they also set the default match rates much lower than the match threshold and can thus contribute to the accounts of more workers without necessarily increasing their costs. Our findings suggest that employers might be doing exactly this, since we find no evidence that total costs differ between firms with and without automatic enrollment. Furthermore, we find no evidence that DC costs crowd out other forms of compensation – suggesting that firms might be lowering their potential and/or default match rates enough to completely offset the higher costs of automatic enrollment without needing to reduce other compensation costs.nThus, while auto-enrollment is likely to boost the retirement savings of workers who would not participate without it, our findings suggest it could lead to lower account balances at retirement for those who were already enrolled or would have enrolled anyway. Furthermore, the prospect of lower match rates may not only reduce employer contributions to retirement accounts, but might also lower workers’ contributions.