Automatic enrollment, employer match rates, and employee compensation in 401(k) plans

Source: Barbara A. Butrica and Nadia S. Karamcheva, U.S. Department of Labor, Bureau of Labor Statistics, Monthly Labor Review, May 2015

This article uses restricted-access employer-level microdata from the National Compensation Survey to examine the relationship between automatic enrollment and employee compensation in 401(k) plans. By boosting plan participation, automatic enrollment can increase employer defined contribution (DC) plan costs, as previously unenrolled workers receive matching contributions. Using information on the cross-sectional variation in employer compensation costs and the automatic enrollment provision of firms sponsoring DC plans, we examine differences in worker compensation between establishments with and without the provision. A statistically significant negative correlation exists between the generosity of the employer match structure and the automatic enrollment provision. However, we find no evidence that total compensation costs or DC costs differ between firms with and without automatic enrollment, and no evidence that DC costs crowd out other forms of compensation.