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Working Paper

Reducing the Complexity Costs of 401(k) Participation Through Quick Enrollment

James J. Choi, David Laibson, and Brigitte C. Madrian
WP2006-03

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Abstract

The complexity of the retirement savings decision may overwhelm employees, encouraging procrastination and reducing 401(k) enrollment rates. We study a low-cost manipulation designed to simplify the 401(k) enrollment process. Employees are given the option to make a Quick Enrollmentâ„¢ election to enroll in their 401(k) plan at a pre-selected contribution rate and asset allocation. By decoupling the participation decision from the savings rate and asset allocation decisions, the Quick Enrollmentâ„¢ mechanism simplifies the savings plan decision process. We find that at one company, Quick Enrollmentâ„¢ tripled 401(k) participation rates among new employees three months after hire. When Quick Enrollmentâ„¢ was offered to previously hired non-participating employees at two firms, participation increased by 10 to 20 percentage points among those employees affected.