401(k) 'Quick Enrollment' Could Boost Participation

February 22, 2005 (PLANSPONSOR.com) - While instituting auto enrollment in retirement plans as a way to boost participation and deferral has become all the rage these days, researchers now say plan sponsors might want to investigate a "quick enrollment" feature instead.

In a study prepared for the Pension Research Council at the Wharton School of the University of Pennsylvania, researchers James Choi, David Laibson, and Brigitte Madrian found that Quick Enrollment by Hewitt Associates resulted in “substantial” 401(k) participation increases in three different studied scenarios. Two iterations of the program were designed as short-term interventions targeting non-participating employees who had previously been hired while the third was an ongoing intervention for newly hired employees.

Quick Enrollment gives employees the option of enrolling in the savings plan by opting into a default contribution rate and asset allocation pre-selected by the employer – as compared to the typical opting out procedure common in auto enrollment.

When Quick Enrollment was made available to previously hired employees who were not participating in their 401(k) plan, 10% to 20% of these non-participants enrolled in the plan.

The researchers pointed out that Quick Enrollment has the benefit of protecting employers from litigation if they pick defaults with equity exposure, since Quick Enrollment is an opt-in mechanism. Like automatic enrollment, Quick Enrollment causes clustering of enrollees at the employer-selected contribution rate and asset allocation. Those at the Quick Enrollment defaults include not only employees who would not have enrolled without Quick Enrollment, but also employees who would have otherwise enrolled with other elections.

The researchers said that another issue which should attract additional study is the optimal number of Quick Enrollment options. Quick Enrollment’s primary goal is to increase 401(k) participation by reducing the complexity of enrolling. However, employees who do not like the Quick Enrollment default will be unlikely to use it to enroll. Increasing the number of Quick Enrollment options makes Quick Enrollment attractive to a greater number of employees but also increases its complexity, the researchers admitted. An extremely large number of pre-bundled savings options would defeat the purpose of Quick Enrollment. However, increasing the number of options from one to two is unlikely to significantly increase Quick Enrollment’s complexity, the study said.

The study said literature on the psychology of consumer choice suggests that increasing the number of savings rates, will lead to increased Quick Enrollment utilization, where increasing the number of asset allocation options will lead to reduced Quick Enrollment utilization.

The study report is here .