Report to the Chairman, Special 

Committee on Aging, U.S. Senate 

United States Government Accountability Office

GAO 

October 2009 RETIREMENT 

SAVINGS 

Automatic Enrollment 

Shows Promise for 

Some Workers, but 

Proposals to Broaden 

Retirement Savings for 

Other Workers Could 

Face Challenges 

GAO-10-31 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

October 2009

RETIREMENT SAVINGS

Automatic Enrollment Shows Promise for Some 

Workers, but Proposals to Broaden Retirement 

Highlights of GAO-10-31, a report to the Savings for Other Workers Could Face Challenges

Chairman, Special Committee on Aging, 

U.S. Senate 

Although employer-sponsored 

retirement plans can be an 

important component of income 

security after retirement, only 

about half of all workers 

participate in such plans. To foster 

greater participation among 

workers who have access to such 

plans, Congress included 

provisions that facilitate plan 

sponsors’ adoption of automatic 

enrollment policies in the Pension 

Protection Act of 2006. To foster 

greater retirement savings among 

workers who do not have access to 

an employer-sponsored plan, 

proposals have been made at the 

federal level for an “automatic IRA” 

and at the state level for statebased programs. 

Because of questions about the 

extent of retirement savings and 

prospects for a sound retirement 

for all Americans, GAO was asked 

to determine (1) what is known 

about the effect of automatic 

enrollment policies among the 

nation’s 401(k) plans, and the 

extent of and future prospect for 

such policies; and (2) the potential 

benefits and limitations of 

automatic IRA proposals and stateassisted retirement savings 

proposals. To answer these 

questions, GAO reviewed available 

reports and data, and interviewed 

plan sponsors, industry groups, 

investment professionals, and 

relevant federal agencies. 

What GAO Recommends

This report makes no 

recommendations. 

Automatic enrollment appears to significantly increase participation in 401(k) 

plans according to existing studies, but may not be suitable for all plan 

sponsors. Some studies found that participation rates can reach as high as 95 

percent under automatic enrollment. Available data indicate that the 

percentage of plans with automatic enrollment policies increased from about 

1 percent in 2004 to more than 16 percent in 2009, with higher rates of 

adoption among larger plan sponsors. In most cases, these plans 

automatically enroll only new employees, rather than all employees. We also 

found that automatic enrollment may not be suitable for all plan sponsors, 

such as those with a high-turnover workforce. Further, some data show that 

while automatic escalation policies—which automatically increase saving 

rates over time—are increasingly common, they lag behind adoption of 

automatic enrollment. In combination with low initial contribution rates, this 

could depress savings for some workers. Also, the emergence of target-date 

funds—funds that allocate investments among various asset classes and shift 

to lower-risk investments as a “target” retirement date approaches—as the 

typical default investment raises questions in light of the substantial losses 

such funds experienced in the past year. 

Adoption and Scope of Automatic Enrollment by Plan Size, March 2009 

Percent of plans

Plan size

All eligible employees

New or recent hires only

Source: GAO presentation of Fidelity Investments data.

0 10 20 30 40 50

Small

Mid-sized 

Large 32.2 8.0

24.8 7.2

7.5 6.6

Other proposals could expand the portion of the workforce saving for 

retirement, but these proposals could face challenges. Under a federally 

mandated automatic IRA, certain employers could be required to enroll 

eligible employees in payroll-deduction IRAs, unless the worker specifically 

opted out. Such a proposal could broaden the population that saves for 

retirement at minimal cost to employers. However, this proposal faces a 

number of challenges, including uncertainty about the extent to which it 

would help low-income workers accumulate significant retirement savings. 

Proposals for state-assisted retirement savings programs could raise coverage 

and, ultimately, savings by involving state governments in facilitating 

retirement savings for workers without access to an employer-sponsored plan. 

However, such programs face uncertainty about employer and worker 

participation levels, as well as legal and regulatory issues. View GAO-10-31 or key components.

For more information, contact Barbara 

Bovbjerg at (202) 512-7215 or 

bovbjergb@gao.gov. 
Page i GAO-10-31 

Contents 

Letter 1

Background 3 

Automatic Enrollment Raises Plan Participation, but Some Plan 

Sponsors Have Not Adopted Plan Features That Could Further 

Facilitate Retirement Savings 9 

Automatic IRA and State-Assisted Retirement Savings Plan 

Proposals Could Improve Access to Retirement Savings Vehicles 

for Uncovered Workers, but Each Proposal Faces Challenges 25 

Concluding Observations 38 

Agency Comments 40 

Appendix I Scope and Methodology 41 

Appendix II Comments from the Department of Labor 45 

Appendix III Comments from the Department of the Treasury 47 

Appendix IV GAO Contact and Staff Acknowledgments 49 

Selected Bibliography on Automatic Enrollment 50 

Tables 

Table 1: Overall Participation Rate Effects of Automatic 

Enrollment 11 

Table 2: Examples of State Roles and Intended Impact under 

Existing Proposals 34 

Table 3: Estimated Program Development and Operation Costs in 

Washington State 36 

Table 4: Six Studies We Reviewed on the Impact of Automatic 

Enrollment and Related Policies 41 

Table 5: Industries and Plan Sponsor Sizes 43 

 Retirement Savings 
Figures 

Figure 1: Proportion of Full-Time Workforce Lacking Retirement 

Plan Coverage, 1990 and 2007 4 

Figure 2: Proportion of Labor Force That Lacked Retirement Plan 

Coverage in 2007, by Selected Worker Characteristics 5 

Figure 3: Adoption and Scope of Automatic Enrollment by Plan 

Size, March 2009 15 

Figure 4: Default Contribution Rates for Plans with Automatic 

Enrollment 21 

Figure 5: Default Fund Types Used by Plans with Automatic 

Enrollment Policies in 2005 and 2008 23 

Figure 6: Steps Involved with Establishing an Automatic IRA 26 

Abbreviations 

ABC American Benefits Council 

ASPPA American Society of Pension Professionals and Actuaries 

CAP Center for American Progress 

CIEBA The Committee on Investment of Employee Benefit Assets 

EBRI Employee Benefits Research Institute 

ERISA Employee Retirement Income Security Act of 1974 

ICI Investment Company Institute 

IRA individual retirement account 

IRS Internal Revenue Service 

PPA Pension Protection Act of 2006 

PRC Pension Rights Center 

PSCA Profit Sharing/401(k) Council of America 

QDIA Qualified Default Investment Alternative 

SBCA Small Business Council of America 

SIMPLE Savings Incentive Match Plan for Employees of Small 

Employers 

SIPP Survey of Income and Program Participation 

TDF target-date fund 

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Page ii GAO-10-31 Retirement Savings
Page 1 GAO-10-31 

 

United States Government Accountability Office

Washington, DC 20548 

 

October 23, 2009 

The Honorable Herb Kohl 

Chairman 

Special Committee on Aging 

United States Senate 

Dear Mr. Chairman: 

Although employer-sponsored retirement plans can be an important 

component of retirement security for millions of American workers, only 

about half of all workers participate in such plans. Further, there has been 

little change in the percentage of workers covered by employer-sponsored 

plans in the last quarter century. While some working Americans choose 

not to participate in an employer-sponsored retirement savings plan, the 

large majority of uncovered workers do not have access to an employersponsored plan. Non-participation in employer-sponsored plans may have 

significant implications for future income, particularly for low-income 

workers. For example, as GAO reported in 2007, about 63 percent of 

workers in the lowest income quartile are projected to have no defined 

contribution plan savings at retirement.1

 Further, workers in this quartile 

are projected to have savings that would replace an average of about 10.3 

percent of their annualized career earnings after retirement, compared to 

replacement rates of about 34 percent for the highest income quartile. 

To foster retirement saving among the portion of the workforce that has 

been offered an employer-sponsored retirement savings plan but does not 

participate in it, some employers have adopted automatic enrollment 

policies for their defined contribution plans—retirement plans under 

which participants accumulate retirement savings in individual accounts, 

such as a 401(k). Under automatic enrollment, a worker is enrolled into 

the plan automatically, or by default, unless they explicitly choose to opt 

out. Employers who have adopted automatic enrollment must also 

establish default contribution rates and default investment vehicles for 

workers who do not specify these choices on their own. Employers may 

also adopt automatic escalation policies, which increase contribution rates 

1

See GAO, Private Pensions: Low Defined Contribution Plan Savings May Pose 

Challenges to Retirement Security, Especially for Many Low-Income Workers, GAO-08-8 

(Washington, D.C.: November 2007), p. 3. 

 Retirement Savings 
 

automatically over time—typically up to a pre-defined maximum 

contribution rate per participant. 

In addition, federal and state legislators have introduced proposals to 

foster retirement savings among those who work for employers that do 

not sponsor a plan. One group of proposals calls for establishing 

automatic individual retirement accounts (IRA) for workers not covered 

by another retirement plan. Under an automatic IRA, employers would be 

required to offer their employees the opportunity to make contributions 

through automatic payroll deduction, with an opt-out provision for 

participants. Another set of proposals calls for state governments to 

facilitate the establishment of retirement accounts for private-sector 

workers who are not covered by employer-sponsored plans. However, as 

of July 2009, no proposals for a federal automatic IRA or a state-assisted 

retirement savings plan had been passed into law. 

In light of your interest in increasing retirement savings and ensuring a 

sound retirement for all Americans, you asked us to examine certain 

options for expanding retirement plan coverage. Specifically, we 

addressed the following two questions: 

1. What is known about the effect of automatic enrollment policies 

among the nation’s 401(k) plans, as well as the extent of and prospects 

for such policies? 

2. What are the potential benefits and limitations of automatic IRA 

proposals and state-assisted retirement savings proposals? 

To answer the first question, we obtained and reviewed data collected by 

large 401(k) plan administrators; reviewed studies on the impact of 401(k) 

automatic enrollment polices on participation rates and saving patterns; 

and conducted in-depth interviews with selected plan sponsors about their 

experience with and views of automatic enrollment. We found the data 

from these sources to be sufficiently reliable for our use. To answer the 

second question, we reviewed and analyzed existing proposals, as well as 

feasibility studies of these proposals, and interviewed pension industry 

experts in academia, representatives of employee benefit consulting firms, 

plan administrators, and state and federal government officials. 

Throughout this report, we considered a worker to be covered by an 

employer-sponsored plan if the employer offers such a plan, the worker is 

eligible to participate under the plan’s rules, and the worker chooses to 

participate in it. For both objectives, we also reviewed relevant federal 

regulations. 

Page 2 GAO-10-31 Retirement Savings
 

We conducted this audit from August 2008 to October 2009 in accordance 

with generally accepted government auditing standards. Those standards 

require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based on our 

audit objectives. Appendix I of this report contains a detailed description 

of the methodology used in this review and its limitations. 

Traditionally, employers that sponsored retirement plans generally 

established “defined benefit” plans. Under such plans, participation is 

generally automatic for eligible workers, and retirement benefits are 

established by a formula, often based on a worker’s salary and years of 

service. Since the 1980s, defined contribution plans—most prominently 

the 401(k) plan—have supplanted defined benefit plans as the dominant 

type of private-sector retirement plan. Under defined contribution plans, 

workers typically must decide whether or not to participate, how much to 

contribute, and how to invest plan assets from a range of options provided 

under the plan. Under a 401(k) plan, if the employee does not participate, 

if contributions made to an employee’s account are insufficient, or if the 

investments that an employee chooses yield an inadequate return, the 

employee may have retirement income that is insufficient to maintain his 

or her desired standard of living. 

Background 

As defined contribution plans emerged as the dominant form of retirement 

plan, the percentage of the population covered by employer-sponsored 

plans changed very little—remaining at about half of the workforce. As 

figure 1 shows, Current Population Survey data reveal that about 48 

percent of the total U.S. workforce was not covered by an employersponsored a plan in 2007.2

 About 40 percent worked for an employer that 

did not sponsor a plan, and about 8 percent did not participate in the plan 

that their employer sponsored. 

 

2

The Current Population Survey is a monthly survey conducted by the U.S. Census Bureau 

among a nationally representative sample of approximately 100,000 households, primarily 

in order to estimate the rates of employment and unemployment. During March of each 

year, the survey includes supplemental questions about retirement plan participation and 

other financial matters. 

Page 3 GAO-10-31 Retirement Savings
 

Figure 1: Proportion of Full-Time Workforce Lacking Retirement Plan Coverage, 

1990 and 2007 

Percent of workers 

Years

Employer sponsors, worker does not participate

Employer does not sponsor 

0

10

20

30

40

50

60

 1990 2007

37

8

40

8

Source: GAO presentation of data in Pension Sponsorship and Participation: Summary of Recent Trends, 

Congressional Research Service, September 2008.

According to the Current Population Survey, certain segments of the 

working population have consistently had much lower rates of 

employment with employers sponsoring a plan, and lower participation 

rates than the working population overall. As figure 2 illustrates, larger 

portions of certain worker groups, such as lower-income workers, younger 

workers, workers employed by smaller companies, and part-time workers 

lack coverage compared to all full-time workers. 

Page 4 GAO-10-31 Retirement Savings
 

Figure 2: Proportion of Labor Force That Lacked Retirement Plan Coverage in 2007, 

by Selected Worker Characteristics 

0

10

20

30

40

50

60

70

80

90

Part -time 

 workers

 Lowest earning 

 quartile

 Employees 

ages 25 to 34

 Firms of < 

25 employees

All full-time 

 workers

Percent of workers

Category of worker

Employer sponsors, worker does not participate

Employer does not sponsor

Source: GAO presentation of data in Pension Sponsorship and Participation: Summary of Recent 

Trends, Congressional Research Service, September 2008.

40

71

46

11

4

8

62

62

15 11

Note: Except where noted, all data are for full-time workers only. 

Workers may choose not to enroll, or delay enrolling, in a retirement plan 

for a number of reasons. For example, according to a recent Congressional 

Research Service presentation of data from the Survey of Income and 

Program Participation, most non-participating workers whose employer 

sponsored a plan said they thought—in some cases, incorrectly—they 

were ineligible.3

 The report also found that substantial numbers of 

 

3

Patrick Purcell, Retirement Plan Participation and Contributions: Trends from 1998 to 

2006. (Washington, D.C.: Congressional Research Service, Jan. 30, 2009). This report is 

based on an analysis of the Survey of Income and Program Participation (SIPP), which is 

conducted by the U.S. Census Bureau and encompasses a nationally representative sample 

of the civilian, noninstitutionalized population of the United States. The SIPP is a 

longitudinal survey, which means that it measures changes pertaining to the same 

individuals and households over time. 

Page 5 GAO-10-31 Retirement Savings
 

employees fail to participate because they believe they cannot afford to 

contribute to the plan. For example, 19 percent of nonparticipating 

respondents cited this reason, and 10 percent said they did not want to tie 

up their money. In recent years, exponents of “behavioral economics” 

have noted that many non-participants may not have made a specific 

decision, but rather fail to participate because of a tendency to 

procrastinate and follow the path that does not require an active decision. 

Further, some workers may not participate because of more immediate 

savings objectives—such as saving for education or a home—and, in the 

case of lower income workers, the prospect that Social Security benefits 

will replace a relatively high percentage of income in their retirement 

years. For example, a recent analysis by the Investment Company Institute 

concluded that lower income workers are less likely to save for retirement 

in part because Social Security benefits replace a higher proportion of 

their pre-retirement earnings.4

In recent years, automatic enrollment has been advocated as a way to 

encourage greater participation in 401(k) plans among the portion of the 

workforce who have access to such plans but opt not to participate. 

Typically, under 401(k)s and some other types of defined contribution 

plans, workers have been required to decide whether or not to join a plan, 

to specify their saving contribution rates, and to select investments from 

the range of investment options offered by the plan.5

 Under automatic 

enrollment, in contrast, a worker would be enrolled in a plan unless she or 

he explicitly opted-out of the plan. Plan sponsors that adopt automatic 

enrollment must specify a default contribution rate—the portion of an 

employee’s salary that will be deposited in the plan—that applies to 

employees who do not choose a different contribution rate. Also, plan 

sponsors must select a default investment—the fund or other vehicle into 

which deferred savings will be invested—unless the employee specifies an 

investment or investments from those available under the plan. Employers 

may also adopt an automatic escalation policy, under which an employee’s 

contribution rates would be automatically increased at periodic intervals, 

such as annually. For example, if the default contribution rate is 3 percent 

of pay, a plan sponsor may choose to increase an employee’s rate of saving 

 

4

Brady, Peter, and Stephen Sigrist, Who Gets Retirement Plans and Why, Investment 

Company Institute Perspective 14, no. 2 (Washington D.C.: September 2008). 

5

In some other types of defined contribution plans, such as profit-sharing and moneypurchase plans, all workers are typically included in the plan, and the employer makes 

contributions and often invests the money in the employees’ account. 

Page 6 GAO-10-31 Retirement Savings
 

by 1 percent per year, up to some maximum, such as 6 percent. While a 

plan sponsor that adopts an automatic enrollment policy must specify a 

default contribution rate and a default investment, plan features such as 

these and automatic escalation may also be adopted in the absence of an 

automatic enrollment policy. 

Automatic enrollment has not been a traditional feature of 401(k) plans 

and, prior to 1998, plan sponsors feared that adopting automatic 

enrollment could lead to plan disqualification.6

 However, in 1998, the 

Internal Revenue Service (IRS) addressed this issue by stating that a plan 

sponsor could automatically enroll newly hired employees and, in 2000, 

clarified that automatic enrollment is permissible for current employees 

who have not enrolled.7

 Nonetheless, a number of considerations inhibited 

widespread adoption of automatic enrollment, including remaining 

concerns such as liability in the event that the employee’s investments 

under the plan did not perform satisfactorily, and concerns about state 

laws that prohibit withholding employee pay without written employee 

consent. More recently, provisions of the Pension Protection Act of 2006 

(PPA) and subsequent regulations further facilitated the adoption of 

automatic enrollment by providing incentives for doing so and by 

protecting plans from fiduciary and legal liability if certain conditions are 

met.8

 In September 2009, the Department of the Treasury announced IRS 

actions designed to further promote automatic enrollment and the use of 

automatic escalation policies.9

 

6

A plan must be considered “qualified” to obtain favorable tax treatment under federal law. 

One requirement for a qualified 401(k) plan is that participants must elect to have the 

employer provide an amount of salary to the employee in cash, or to defer the amount of 

salary and deposit the amount in the employee’s plan account. 

7

The 1998 IRS ruling—IRS Revenue Ruling 98-30—held that employer contributions made 

to a plan on an employee’s behalf, in lieu of cash payment, are considered elective 

contributions, so long as the employee has an opportunity to receive cash instead, and has 

not affirmatively expressed a desire to do so. In a subsequent ruling—IRS Revenue Ruling 

2000-8—the IRS determined that contributions made on behalf of either a newly hired or 

current employee in lieu of cash compensation were valid elective contributions. 

8

 Pub. L. No. 109-280 (2006) §902 of PPA added Code sections 401(k)(13), 401(m)(12) and 

414(w). See final regulations of the Internal Revenue Service regarding “Automatic 

Contribution Arrangements” at 74 Fed. Reg. 8200 (Feb. 24, 2009). 

9

These IRS actions include Revenue Ruling 2009-30, which demonstrates ways a 401(k) 

plan sponsor can include automatic contribution increases in its plan, and Notice 2009-65, 

which includes sample automatic enrollment plan language that a 401(k) plan sponsor can 

adopt with automatic IRS approval. 

Page 7 GAO-10-31 Retirement Savings
 

PPA Provisions Facilitating Automatic Enrollment 

Anti-Discrimination Safe Harbor 401(k) (13) 

Plans that adopt automatic enrollment may be exempt from required annual testing to 

ensure that the plan does not discriminate in favor of highly compensated employees. 

To obtain safe harbor protection, plans must adopt automatic enrollment as well as 

other plan features and policies. For example, the plan must: 

• Notify affected employees about automatic contributions 

• Defer at least 3 percent of pay in the first year 

• Automatically increase contribution by 1 percent each subsequent year, to a 

minimum of 6 percent and a maximum of 10 percent 

• Invest savings in a type of investment vehicle identified in Department of Labor 

regulations as a Qualified Default Investment Alternative (QDIA)a

 

• Match 100 percent of the first 1 percent of employee contributions, and 50 percent 

of contributions beyond 1 percent, up to 6 percent of wages 

Protection from Employee Retirement Income Security Act of 1974 (ERISA) 

Fiduciary Liability 

In the absence of direction from an employee, plans that automatically invest 

contributions in a QDIA are treated as if the employee exercised control over 

management of their savings in the plan. As a result, plans that comply with 

Department of Labor regulations pertaining to QDIAs will not be liable for any loss that 

occurs as a result of such investments. 

90-Day Withdrawal Period 

An automatically enrolled worker has 90 days to opt out and withdraw any contributions 

(including the earnings on those contributions.) These amounts will not be subject to 

the extra tax that normally applies to distributions received before age 591⁄2. 

414(w)(2)(B). 

Protection from State Wage-Garnishment Laws 

PPA preempts any state law that would directly or indirectly prohibit or restrict the 

inclusion of an automatic enrollment arrangement in a plan. 

Source: GAO analysis of Pension Protection Act and related regulations. 

a

Final regulations issued by the U.S. Department of Labor specify four categories of QDIAs. They are 

(1) a product with a mix of investments that takes into account an individual’s age (such as a targetdate fund), (2) an investment service that allocates assets according to an individual’s age (such as a 

managed account), or (3) a product with a mix of investments that takes into account the 

characteristics of the group of employees as a whole, rather than each individual (such as a balanced 

fund). A sponsor may also use a capital preservation fund as a QDIA for the first 120 days of an 

individual’s participation to simplify administration if the worker opts out of the plan. 29 C.F.R. 

§2550.404c-5(c)(4). 

Other proposals have been put forth with the intent of broadening the 

practice of saving for retirement among workers whose employers do not 

Page 8 GAO-10-31 Retirement Savings
 

sponsor a retirement plan. One such proposal is the automatic IRA, which 

would require employers that do not sponsor a retirement plan to facilitate 

direct deposit or payroll-deduction savings for all employees.10 To 

maximize participation, employees would be automatically enrolled, but 

would be permitted to opt out. Legislative proposals to establish an 

automatic IRA requirement were introduced in Congress in 2006 and 2007, 

and the concept of an automatic IRA was also mentioned in the President’s 

2010 Budget proposal.11 In addition, legislative proposals have been 

introduced in some states’ legislatures that would involve state 

governments in facilitating payroll-deduction retirement plans or IRAs for 

employers that do not already offer them.12 According to the architect of 

the state plan concept, a state could play an intermediary role to pool 

assets and share expenses among many plan sponsors, thus lowering 

costs. 

Existing studies show that automatic enrollment significantly increases 

participation rates in 401(k) plans, although beneficial effects of automatic 

enrollment may depend on accompanying policies designed to ensure 

adequate savings and appropriate investment. While defined contribution 

plan sponsors have increasingly adopted automatic enrollment in recent 

years, this approach may not be suitable for all plan sponsors, and 

available data show that some plan sponsors have not augmented 

automatic enrollment policies with other policies designed to ensure 

adequate savings. 

Automatic Enrollment 

Raises Plan 

Participation, but 

Some Plan Sponsors 

Have Not Adopted 

Plan Features That 

Could Further 

Facilitate Retirement 

Savings 

 

10IRAs were established under the Employees Retirement Income Security Act of 1974. 

(Pub. L. 93-406, codified at 29 U.S.C. 1001 et seq.) IRAs are intended to provide individuals 

not covered by employer-sponsored retirement plans an opportunity to save for retirement 

in their own tax-deferred accounts, and to give retiring workers or those changing jobs a 

way to preserve assets in employer-sponsored plans by allowing them to transfer plan 

balances to an IRA. Over the past 30 years, Congress has created several types of IRAs with 

different features for individuals and small businesses. 

11The two legislative proposals were the Automatic IRA Act of 2007, S. 1141 and H.R. 2167, 

110th Cong., 1st sess.; and the Automatic IRA Act of 2006, S. 3952 and H.R. 6210, 109th 

Cong., 2nd sess. 

12For example, see Wash. Second Substitute Senate Bill 5791, 61st Legislature, 2009 Regular 

Session, and Md. Senate Bill 728, 2008 Regular Session. 

Page 9 GAO-10-31 Retirement Savings
 

According to analyses we reviewed, automatic enrollment policies result 

in considerably increased 401(k) participation rates for plans adopting 

them, with some participation rates reaching as high as 95 percent.13 For 

example, one study followed comparison groups hired before and after a 

company adopted automatic enrollment for new employees only and 

compared the participation rates of the two groups. The participation rate 

for those hired before automatic enrollment was adopted was 37 percent 

at 3 to 15 months of tenure, compared with an 86 percent participation 

rate for the group hired after automatic enrollment with a similar amount 

of tenure.14 According to the studies we reviewed, automatic enrollment 

has this effect because many people find it easier to delay the decision to 

enroll in a plan out of inertia, procrastination, feelings of intimidation 

about making savings and investment decisions, or other factors. Workers 

may intellectually understand the importance of saving for retirement but 

have trouble overcoming their own inertia to start saving or to save 

effectively.15 A team of researchers found that under automatic 

enrollment, workers’ inertia works in favor of saving for retirement 

because workers need to do little or nothing to participate in their 

employers’ plan.16 Further, workers may also decline to participate, in p

because they believe the decision to participate in a 401(k) plan r

time-consuming and complex decisions, such as choosing how muc

contribute and how to invest their contributions. Automatic enrollment, 

through its default contribution rates and default investment vehicles, 

Automatic Enrollment 

Increases Participation 

Rates, but Some 

Participants’ Acceptance 

of the Default Contribution 

Rate and Investment Fund 

May Limit Savings 

Potential 

art, 

equires 

h to 

 

13Four of the six analyses we reviewed were case studies that compared participation rates 

at companies before and after automatic enrollment was adopted, while two of the 

analyses were conducted by large plan administrators and analyzed the records of their 

respective defined contribution plan sponsors and participants. Because these analyses do 

not represent a random sample of 401(k) plan sponsors, their findings are not 

generalizable. For more information about the studies, see appendix I. 

14Brigitte C. Madrian and Dennis F. Shea, “The Power of Suggestion: Inertia in 401(k) 

Participation and Savings Behavior,” The Quarterly Journal of Economics, vol. CXVI, no. 

4: 1149-1187. 

15Olivia S. Mitchell and Stephen P. Utkus, “Lessons from Behavioral Finance for Retirement 

Plan Design.” Chapter 1 in Pension Design and Structure: New Lessons from Behavioral 

Finance, eds. Olivia S. Mitchell and Stephen P. Utkus. (New York, N.Y.: Oxford University 

Press Inc., 2004). 

16James J. Choi, David Laibson, Brigitte C. Madrian, and Andrew Metrick, “Saving for 

Retirement on the Path of Least Resistance.” Chapter 11 in Behavioral Public Finance, 

eds. Edward J. McCaffery and Joel Slemrod. New York: Russell Sage Foundation, 2006. 

Page 10 GAO-10-31 Retirement Savings
 

offers an easier way to start saving.17 Table 1 shows overall participation 

rate increases reported in the various studies we reviewed. 

Table 1: Overall Participation Rate Effects of Automatic Enrollment 

Overall participation rate 

Study Authors (year of study) 

Percent under voluntary 

enrollment only 

Percent under 

automatic enrollment

The Power of SuggestionaMadrian and Shea (2001) 37 86

For Better or For WorseaChoi et al. (2001) 26-43b85 and above

Nationwide Savings Plan Automatic Enrollment 

Getting Associates PREPared for Retirementa

Swanson and Farnen (2008) 77 95

The Importance of Default Options for 

Retirement Saving Outcomes: Evidence from 

the United Statesa

Beshears et al. (2008) 60 95

Building Futures Volume VIII Fidelity Investments (2007) 53 81

Measuring the Effectiveness of Automatic 

Enrollment 

Vanguard Center for 

Retirement Research (2007) 

45 86

Source: GAO analysis. 

a

These studies are based on a small number of case studies. 

b

After 6 months of tenure. This study reports separate results for three case-study companies. 

Three of the studies also found that automatic enrollment has a significant 

effect on subgroups of workers with relatively low participation rates, 

such as lower-income and younger workers. For example, the Fidelity 

Investments study found that 30 percent of workers aged 20 to 29 were 

participating in plans without automatic enrollment. In plans with 

automatic enrollment, the participation rate for workers in that age range 

was 77 percent, an increase of 47 percentage points.18 In addition, four of 

the studies found that automatic enrollment policies reduced the 

disparities in participation rates between certain groups of workers. For 

example, the Madrian and Shea study examined participation rates by race 

and ethnicity and found that, among workers hired under a voluntary 

enrollment only policy, Hispanic workers had the lowest participation rate 

 

17Madrian and Shea. 

18Fidelity Investments, Building Futures Volume VIII: A Report on Corporate Defined 

Contribution Plans (Boston, Mass.: 2007). Fidelity compared the participation rate for 

automatic enrollment–eligible employees in plans with automatic enrollment with the 

participation rate for eligible employees in plans without automatic enrollment. The study 

analyzed the data of more than 10 million participants in nearly 13,000 Fidelityadministered plans, representing $674 billion in assets. 

Page 11 GAO-10-31 Retirement Savings
 

at 19.0 percent, blacks had a slightly higher participation rate of 21.7 

percent, and whites had the highest participation rate at 42.7 percent. 

Under automatic enrollment, however, the participation rates for Hispanic 

and black employees nearly quadrupled to 75.1 percent and 81.3 percent, 

respectively, narrowing the gap with white workers, whose participation 

rate more than doubled, increasing to 88.2 percent. The difference in 

participation rates between white and Hispanic employees fell from 23.7 to 

13.1 percentage points.19

The high level of participation rates under automatic enrollment appears 

to persist after such policies are adopted, according to two of the studies 

in our review.20 Both studies observed participation rates at specific 

companies for about 3 years after an automatic enrollment policy was 

adopted. The studies found that for employees hired under automatic 

enrollment, participation jumped almost immediately and then increased 

slightly over the 3-year period, but remained relatively stable. The 

Vanguard study modeled the participation rate over time and found a 

decline in the participation rate over a 3-year period, with the participation 

rate falling by about 10 percentage points from its peak of 91 percent but 

remaining high relative to participation rates for plans without automatic 

enrollment.21 Consistent with these results, plan sponsors who had 

adopted automatic enrollment stated that their experience also indicated 

that higher participation rates were sustained. One plan sponsor, a large 

manufacturer, reported that after 2 years of automatic enrollment, 95 

 

19Madrian and Shea. 

20James J. Choi, David Laibson, Brigitte C. Madrian, and Andrew Metrick, “For Better or 

For Worse: Default Effects and 401(k) Savings Behavior.” Chapter 2 in Perspectives on the 

Economics of Aging, ed. David A. Wise. Chicago: University of Chicago Press, June 2004. 

John Beshears, James J. Choi, David Laibson, and Brigitte C. Madrian, “The Importance of 

Default Options for Retirement Saving Outcomes: Evidence from the USA.” Chapter 3 in 

Lessons from Pension Reform in the Americas, eds. Stephen J. Kay and Tapen Sinha. 

(New York: Oxford University Press Inc., 2008) 

21William E. Nessmith, Stephen P. Utkus, and Jean A. Young, Measuring the Effectiveness 

of Automatic Enrollment (Valley Forge, Pa.: Vanguard Center for Retirement Research, 

December 2007). Vanguard reported predicted effects from a logistic regression modeling 

comparing 527 plans with voluntary enrollment and 48 plans that implemented automatic 

enrollment for new hires only. Plans introducing automatic enrollment during the analysis 

period have employees hired under both voluntary and automatic enrollment. As of 

December 31, 2007, Vanguard administered over 2,200 defined contribution plans with 

more than 3 million participants. A Vanguard official reported that total plan assets at the 

end of 2008 were approximately $194 billion. 

Page 12 GAO-10-31 Retirement Savings
 

percent of employees who had been automatically enrolled had stayed in 

the plan.22

Although automatic enrollment can increase participation and saving rates 

for most workers, it may have an adverse effect on saving rates and 

investment choices for other workers, depending on the nature of default 

contribution rates and default investment funds used, according to some 

of the studies in our review. Four of the six studies we reviewed found 

that automatically enrolled participants are likely to accept the plan’s 

default contribution rate. Three of the studies found that some 

participants would have selected a contribution rate higher than the 

default rate had they not been subject to automatic enrollment and had 

they chosen to enroll in the plan voluntarily. Further, two of the three 

studies also found that some participants were likely to accept a default 

investment fund with relatively low future prospects for return on 

investment, such as money-market or stable-value funds, compared to the 

investment fund they would have selected if they had voluntary enrolled.23

Thus, these studies concluded that overall savings for these particular 

participants were lower under automatic enrollment.24 Further, the 

Beshears et al. study calculated participation rates for a company that 

doubled its default contribution rate from 3 percent to 6 percent and found 

that the participation rates were virtually identical before and after the 

policy change. In addition, Fidelity Investments reported that employees 

accept the default contribution rate the majority of the time, regardless of 

how high it is. Studies have found that default policies have these effects, 

 

22It should be noted that rates of participation in employer-sponsored plans without 

automatic enrollment tend to increase with the length of employee tenure. For this reason, 

the impact of automatic enrollment on participation rates may be significantly less 

pronounced as length of tenure increases. 

23A money market fund is a type of mutual fund that is required by law to invest in low-risk 

securities. These funds have relatively low risks compared to other mutual funds. A stablevalue fund typically invests in bonds and achieves rates of return 2 to 3 percentage points 

higher than money market funds. The fund manager guarantees the investors a certain rate 

of return. 

24Choi et al. and Madrian and Shea. While particular types of assets, such as money-market 

and stable-value funds, may result in lower asset accumulations for some participants, they 

must also consider market risk when assessing their asset allocations. Market risk is the 

possibility of an overall decline in a broad class of assets, such as stocks. In 2008, stock 

values fell across the board and even well-diversified portfolios could not protect 

participants’ portfolios from depreciating. Most investment advisors recommend 

diversifying across asset classes as well as within a particular asset class. For example, 

bond prices have historically been less volatile than stock prices, and there have been long 

periods when returns on bonds and stocks have not been closely correlated. 

Page 13 GAO-10-31 Retirement Savings
 

in part, for the same reasons that automatic enrollment increases 

participation rates—accepting the defaults is the path of least resistance 

and requires no action on the part of the worker. In addition, some studies 

found that some employees see default policies as implicit advice from the 

plan sponsor and that they imply optimal saving rates and investment 

choices. 

Adoption of Automatic 

Enrollment Has Grown 

Considerably in Recent 

Years, but Many Plan 

Sponsors Have Not 

Adopted Policies to Ensure 

Adequate Long-Term 

Savings 

Automatic enrollment policies have been increasingly adopted by defined 

contribution plan sponsors in recent years as a result of several factors. 

Nonetheless, a number of considerations may limit adoption of automatic 

enrollment over the long term. Low default contribution rates and an 

apparent lag in the adoption of automatic escalation policies raise 

questions about the adequacy of long-term saving rates under automatic 

enrollment. Further, the widespread adoption of target-date funds 

(TDF)—funds that allocate investments among various asset classes and 

automatically shift to lower-risk, income-producing investments as a 

“target” retirement date approaches—as default investments for plans with 

automatic enrollment has raised concerns about investment risk and 

transparency of investments of TDFs for participants nearing retirement. 

Greater Adoption of 

Automatic Enrollment and 

Factors Driving Trend 

Data from two large plan administrators, as well as discussion with 

retirement plan experts, indicate that plan sponsors’ adoption of such 

policies has grown considerably in recent years. Data from Fidelity 

Investments show that the percentage of defined contribution plans 

adopting automatic enrollment grew from about 1 percent in December 

2004 to about 16 percent in March of 2009. Comparable data from 

Vanguard show that about 19 percent of plans had adopted automatic 

enrollment as of December 2008, up from 8 percent in June 2006. 

Data from one plan administrator show that large plan sponsors—

sponsors of plans with $500 million or more in assets—have adopted 

automatic enrollment policies more often than smaller plans. As figure 3 

illustrates, Fidelity Investments data show that about 40 percent of large 

plans had adopted automatic enrollment by March 2009, while only about 

14 percent of small plans had done so.25 According to Fidelity’s data, about 

 

25For purposes of this data, Fidelity defines large plans as those with more than $500 

million in assets, mid-sized plans as those with between $35 million and $500 million, and 

small plans as those with less than $35 million in assets. 

Page 14 GAO-10-31 Retirement Savings
 

47 percent of all plan participants are included in plans that offer 

automatic enrollment. 

Figure 3: Adoption and Scope of Automatic Enrollment by Plan Size, March 2009 

0

5

10

15

20

25

30

35

40

45

Large Mid-sized Small

Percent of plans

Plan size

All eligible employees

New or recent hires only

Source: GAO presentation of Fidelity Investments data.

32.2

8.0

24.8

7.2

7.5

6.6

Plan sponsors can choose to apply automatic enrollment “broadly” to all 

employees, or more narrowly to include only newly hired employees. Data 

from Fidelity Investments indicate that automatic enrollment policies are 

typically applied only to new or recently hired employees, but a growing 

percentage of plan sponsors extended automatic enrollment to existing 

employees as well. Among plans with automatic enrollment polices, about 

58 percent of plans apply such policies to new and recently hired 

employees only, while about 42 percent apply automatic enrollment to 

existing eligible employees as well. 26 There is considerable variation in 

this pattern by plan size—as figure 3 illustrates, the majority of large plans 

had adopted automatic enrollment only for new or recently hired 

 

26Fidelity Investments, Building Futures: Auto Solutions Data (Boston, Mass.: September 

2008). 

Page 15 GAO-10-31 Retirement Savings
 

employees, while nearly half of small plans applied the policy to all eligible 

employees. 

According to plan sponsors, retirement plan experts, and others we 

contacted, several considerations have been driving the increase in 

automatic enrollment. These considerations include: (1) plan sponsors’ 

desire to increase participation rates, (2) plan administrators’ marketing of 

automatic enrollment, and (3) aspects of the Pension Protection Act that 

facilitate and encourage the adoption of automatic enrollment. 

Sponsor Desire to Increase Participation Rates: Officials of each of 

the six plan sponsors we contacted that had adopted automatic enrollment 

highlighted the desire to better ensure adequate retirement savings for 

employees. Some plan sponsors noted that automatic enrollment was 

considered necessary because other methods of increasing plan 

participation had not been effective. For example, one plan sponsor had 

sent e-mails and educational materials reminding employees of the plan’s 

availability and provided them with analyses of the matching funds they 

had lost by not contributing. While these methods raised contribution 

rates from the 50 percent range to the 65 percent range, the company 

could not further increase contribution rates. However, after instituting an 

automatic enrollment policy, the plan’s participation rates increased to 93 

percent. An official of another plan sponsor noted that an automatic 

enrollment policy was necessary because the company had a very young 

workforce, and the company believed that retirement savings was a very 

low priority and a distant, “abstract” benefit for these workers. Some plan 

sponsors also noted that adoption of an automatic enrollment policy may 

be particularly urgent in the case of plans that discontinue other benefits. 

For example, representatives of two plan sponsors stated that automatic 

enrollment was adopted at about the time that an existing defined benefit 

plan was frozen—that is, closed to new entrants. A representative of a 

large plan consulting firm noted that sponsors may do this with the long 

term in view; they want their employees to be able to retire at retirement 

age, partly to ensure that as productivity drops off, these workers do not 

have a reason to stay on indefinitely. This plan consultant also said that 

Page 16 GAO-10-31 Retirement Savings
 

some plans may adopt automatic enrollment to help ensure that the 

sponsor can pass nondiscrimination testing.27

Plan Administrator Marketing: 401(k) plan administrators—firms that 

provide and manage retirement plans for plan sponsors—have been 

actively marketing and promoting adoption of automatic enrollment, 

according to plan administrators and others. One large plan administrator 

stated that it encourages automatic enrollment by conducting analyses of 

the effects of automatic enrollment tailored to individual plan sponsor 

clients. The official stated that when plan sponsors see the potential 

benefits to employees of automatic enrollment compared to the status 

quo, about 25 percent of them have adopted automatic enrollment. 

The Pension Protection Act: Finally, various aspects of the PPA have 

facilitated the trend toward automatic enrollment. An official of one of the 

nation’s largest 401(k) plan administrators noted that the criteria and 

guidelines established in the PPA streamlined and simplified the decisionmaking process about automatic enrollment and the related plan design 

features. One consultant noted that the deliberations about the PPA 

involved considerable industry input and had an “announcement effect” 

that generated considerable publicity regarding automatic enrollment. 

Representatives of two plan sponsors said that the PPA safe harbor 

protection was a consideration in adopting automatic enrollment.28 One 

plan had not adopted all of the PPA safe harbor provisions. Instead, it used 

the safe harbor specifications as a guide in setting features such as a 

matching contributions and the 3 percent default contribution rate. The 

other plan sponsor adopted all of the PPA safe harbor provisions. 

Various factors, including higher costs, management views, concerns 

about legal and regulatory challenges, and lack of awareness may delay or 

prevent the adoption of automatic enrollment policies by some plan 

sponsors. 

Factors Limiting the Adoption 

of Automatic Enrollment 

 

27To maintain their 401(k) plans’ qualified status, employers must perform tests to ensure 

that their plans comply with federal tax nondiscrimination rules (26 U.S.C. §401). These 

rules seek to balance benefit accruals of highly paid participants with those of non-highly 

paid participants. 

28The plan sponsor may utilize a “safe harbor” to avoid otherwise required ADP and ACP 

antidiscrimination testing of these plans. Specifically, in exchange for utilizing the safe 

harbor, the employer is required to make certain contributions to plan participants and use 

an accelerated vesting schedule. 

Page 17 GAO-10-31 Retirement Savings
 

Greater Costs: Automatic enrollment implies greater costs for plan 

sponsors, including higher matching costs and greater fees paid to plan 

administrators. One plan administrator stated that automatic enrollment 

could be particularly unattractive to cost-sensitive companies that have 

narrow profit margins. This concern was reflected by a plan sponsor who 

noted that the adoption of automatic enrollment would be difficult for one 

of the company’s subsidiaries, which operated in a very cost-competitive 

environment and would therefore have difficulty passing on costs to 

customers. The subsidiary would probably have to absorb the additional 

costs through reduced profit margins. Plan consultants and plan 

administrators noted that the costs of automatic enrollment may be a 

particular concern in the current economic environment. One large plan 

administrator noted that the current state of the economy will slow down 

adoption of automatic enrollment, as many companies try to minimize 

additional costs. While some noted that this should be a transient 

consideration, one expert we contacted said that the recession would be a 

memorable event for some plan sponsors, which could have longer-term 

implications. 

Certain types of plan sponsors may be especially concerned about the cost 

impact of automatic enrollment. For example, plan sponsors that employ a 

low-wage and high-turnover workforce—such as retail establishments and 

restaurant chains—may be especially reluctant to adopt automatic 

enrollment because of the additional cost, administrative burden, and 

prospect of limited benefits for employees. One such plan sponsor we 

contacted explained that adopting automatic enrollment would result in a 

five-fold increase in the number of plan participants and associated 

administrative costs and that the company might lower the employer 

match to mitigate the associated cost increases. In addition, the plan 

would have greater administrative burdens related to the need for 

employee communication and to handle inquiries from the much larger 

pool of participants. A representative of this plan sponsor also explained 

that, even with contribution rates of 6 percent, low-wage and short-tenure 

staff would accumulate very small balances and likely abandon them or 

take a lump-sum distribution upon separation. 29

 

29A recent GAO report discusses the impact of lump sum distributions—that is, cashouts of 

account balances at job separation that are not rolled over into another retirement plan—

and other forms of 401(k) account “leakage”: 401(k) Plans: Policy Changes Could Reduce 

the Long-term Effects of Leakage on Workers’ Retirement Savings GAO-09-715 

(Washington, D.C.: Aug. 28, 2009). 

Page 18 GAO-10-31 Retirement Savings
 

Management Views: Apart from costs, experts noted that some plan 

sponsors may be reluctant to adopt automatic enrollment due to certain 

management views or out of concern about employee reaction or welfare. 

Some experts told us that some managers view automatic enrollment as 

overly paternalistic or do not wish to reward passivity in employees who 

do not voluntarily join a plan. For example, a representative of one plan 

sponsor told us that the company wanted all employees to participate in 

the plan but wanted active participation and conscientious saving. A 

representative of a small manufacturing company stated that management 

believes that the workforce would be highly distressed if the company 

began summarily taking 401(k) contributions from their pay, even with a 

well-communicated opt-out feature. The representative further noted that 

the sponsor believes the recent declines in the equity markets also weigh 

against adoption of automatic enrollment, in light of the firm’s fiduciary 

responsibility for the plan. 

Legal and Regulatory Challenges: Some experts noted that some plan 

sponsors may be reluctant to adopt automatic enrollment due to legal and 

regulatory concerns. One expert noted that small plans see the legal and 

regulatory environment surrounding 401(k)s as complex and may see a 

switch to automatic enrollment as overly risky. Another expert noted that, 

unlike larger plan sponsors, small plans without well-staffed legal and 

compliance departments may be risk-averse and slow to adopt new 

policies. 

Lack of Employer Awareness: Some smaller employers may not be 

aware that automatic enrollment is a plan feature available to them. 

Representatives of two small plan sponsors said that they were generally 

unaware of automatic enrollment as a plan option. For example, one small 

plan sponsor stated that neither she nor the organization’s 401(k) 

employee advisory committee was familiar with the concept of automatic 

enrollment. Further, the local service provider that provides the 

organization with plan guidance and management assistance had not 

suggested such a policy. Relatedly, representatives of one large plan 

administrator told us that small plan sponsors generally lag behind large 

plan sponsors in adopting innovative services, tools, and plan design 

features, including automatic enrollment. 

Available data show that many plans with automatic enrollment have not 

adopted default automatic escalation policies, which, in combination with 

low default contribution rates, could result in low saving rates for 

participants who do not increase contribution rates over time. Also, 

experts noted that a trend toward TDFs as default investments, while 

Impact of Automatic Features 

on Saving Rates and 

Investment Risk and 

Transparency 

Page 19 GAO-10-31 Retirement Savings
 

potentially beneficial in important respects, also raises questions about the 

investment risks and transparency for those close to retirement. 

As figure 4 illustrates, data from two large plan sponsors indicate that the 

majority of plans with automatic enrollment have adopted initial default 

contribution rates of 3 percent. Between 15 to 17 percent of plans have a 

default contribution rate of less than 3 percent, and between 22 and 25 

percent of plans have a default contribution rate of more than 3 percent.30

Data from Fidelity showed that the average default contribution rate grew 

modestly, from about 3.0 percent in March 2005 to about 3.2 percent in 

March 2009. According to a Vanguard official, the average default 

contribution rate was 3.3 percent at the end of 2008.31

 

30While there is no consensus about what constitutes an adequate contribution rate, some 

pension experts have cited combined contribution rates—including employer and 

employee contributions—of between 12 and 20 percent of pay. 

31Interviews with plans sponsors and others revealed a number of reasons for the 

predominance of the 3 percent default rate. For example, a representative of a firm that 

consults with many retirement plans stated that plan sponsors do not want a high default 

contribution rate that would risk causing automatically enrolled participants to drop out of 

the plan. A large plan administrator noted that the Pension Protection Act’s specification of 

a 3 percent minimum default rate for safe harbor plans was seen by many as implied advice 

to start at 3 percent. 

Page 20 GAO-10-31 Retirement Savings
 

Figure 4: Default Contribution Rates for Plans with Automatic Enrollment 

0

10

20

30

40

50

60

70

1 percent 2 percent 3 percent 4 percent 5 percent 6 percent

Percent of plans

Source: GAO presentation of data from Fidelity Investments and Vanguard Group. 

Default deferral percentages 

Fidelity

Vanguard

5

2

12 13

62

60

9 10

6 7 7 8

Note: Fidelity data are as of March 2009. Vanguard data are as of December 2008. Vanguard data 

indicate that 8 percent of plans had default deferral rates of 6 percent or more. 

Available data is mixed with regard to the extent to which plan sponsors 

with automatic enrollment have also adopted automatic escalation 

policies. According to one plan administrator’s data, about 45 percent of 

plans with automatic enrollment had adopted a default automatic 

escalation feature as of March 2009, up from zero in 2005.32 Further, this 

administrator’s data shows that adoption of default automatic escalation 

policies are much less prevalent among large plans than small plans—

about 24 percent of large plans with automatic enrollment policies have 

adopted such a policy, while about 51 percent of small plans have done so. 

Data from another plan administrator show a much greater rate of 

adoption of default automatic escalation policies—77 percent of all plans 

 

32According to data from Fidelity, another 46 percent of automatic enrollment plans have 

adopted optional automatic escalation, which means that participants have the option of 

increasing their contribution rate automatically at periodic intervals, such as once per year. 

Page 21 GAO-10-31 Retirement Savings
 

with automatic enrollment had adopted default automatic escalation 

policies in 2008, up from 31 percent in 2005.33

Available data indicate that plans with automatic enrollment policies 

overwhelmingly adopted TDFs as a default investment. TDFs allocate their 

investments among various asset classes and shift that allocation from 

equity investments to fixed income and money market investments as a 

“target” retirement date approaches.34 Eighty-seven percent of Vanguard 

Group plans with automatic enrollment had adopted TDFs as a default 

investment at the end of 2008, compared to 42 percent in 2005. Conversely, 

the use of balanced funds, money market funds, and stable value funds as 

default investments have declined significantly.35 This trend toward TDFs 

as a default investment vehicle is corroborated by data from Fidelity 

Investments, which shows that 96 percent of plans with an automatic 

enrollment policy used TDFs as of March 2009, up from 57 percent at the 

end of 2005.36

 

33According to a representative of a plan administrator, a number of factors could explain 

this difference. For example, one plan administrator may have actively promoted default 

automatic escalation. 

34This shift in TDF asset allocation is commonly referred to as the fund’s “glide path.” 

Sometimes TDFs have significant equity components at the retirement date and even at the 

endpoint of the glide path. 

35Both money market and stable value funds were often used as default investments before 

the PPA because employers were concerned about legal liability if investments they had 

chosen declined in value as a result of market fluctuations. As a result, they were led to 

invest workers contributions in such low-risk, low-return default investments. 

36Target-date funds are also sometimes referred to as “lifecycle funds.” The two are 

generally synonymous in that they both adjust the proportion of different asset classes over 

time so that the investor has lower risk as they approach retirement. 

Page 22 GAO-10-31 Retirement Savings
 

Figure 5: Default Fund Types Used by Plans with Automatic Enrollment Policies in 

2005 and 2008 

Source: GAO presentation of data from Vanguard Group.

Default investments, 2005 Default investments, 2008

Money market or stable value fund

Balanced fund

Target date funds

Percent category

42%

87%

11%

2%

33%

25%

TARGET-DATE FUNDS 

Target-date funds (TDF) offer investors certain advantages generally not offered by 

other types of investment vehicles. TDFs allocate their investments among various 

asset classes and shift that allocation to more conservative investments as a “target” 

date approaches. For example, a TDF could be designed for workers expecting to 

retire many years in the future and would typically have a much greater allocation to 

equities and a lesser allocation to fixed-income investments. Conversely, a fund 

designed for workers nearing retirement age would tend to have a greater allocation to 

fixed-income investments. TDFs thus offer participants a potentially beneficial longterm asset allocation strategy while lowering risks as the participant approaches 

retirement age. 

Source: GAO synthesis of various descriptive literature. 

This trend is important in part because recent evidence suggests that 

participants who are automatically enrolled in plans with target-date fund 

defaults tend to have a high concentration of their savings in these funds. 

A recent analysis by the Employee Benefit Research Institute found that 

workers who were considered to be automatically enrolled in a 401(k) 

Page 23 GAO-10-31 Retirement Savings
 

plan were more likely than those who voluntarily joined to invest all their 

assets in a TDF.37 The study found that, except for participants in plans 

with more than 10,000 participants, more than 90 percent of those 

automatically enrolled in TDFs had all of their allocation in such funds. 

While TDFs may help ensure that workers have a more age-appropriate 

mix of investments, some experts have stated that TDFs may pose certain 

challenges, as recent events in the financial markets have illustrated. As a 

result of the 2008 stock market decline, some TDFs designed for those 

expecting to retire in or around 2010 lost 25 percent or more in value. In 

light of concerns about a number of issues, including how plan sponsors 

evaluate, monitor, and use TDFs, in 2008 the Advisory Council on 

Employee Welfare and Pension Benefit Plans recommended that the U.S. 

Department of Labor provide more specific guidance regarding the 

complex nature of TDFs, and outline the methodology that plan fiduciaries 

should follow in selecting and monitoring them. The Advisory Council also 

stated that additional education materials would help plan participants 

become aware of the value and risks of TDFs.38

 

37Craig Copeland, Use of Target-Date Funds in 401(k) Plans, 2007, Issue Brief 327 

(Washington, D.C.: Employee Benefit Research Institute, March 2009). This analysis was 

based on the Employee Benefit Research Institute/Investment Company Institute database, 

which contains data on nearly 22 million participants in participant-directed retirement 

plans. Although this database does not include information on plans’ use of automatic 

enrollment, the author of the study developed a proxy to identify participants who were 

considered to have been automatically enrolled. 

38The Department of Labor and the Securities and Exchange Commission held a joint 

public hearing in June 2009 on TDFs and are currently reviewing the testimony presented 

at the hearing and supplemental materials submitted for the public record. (Hearing on 

Target Date Funds and Similar Investment Options, 74 Fed. Register 24052.) 

Page 24 GAO-10-31 Retirement Savings
 

In order to promote retirement savings among the 40 percent of the 

workforce whose employer does not sponsor a plan, members of 

Congress, in recent years, have introduced bills for federally required 

“automatic IRAs” that would be implemented nationwide. Automatic IRAs 

offer the potential benefit of expanding retirement coverage but some 

have expressed concerns that automatic IRAs may not result in significant 

retirement savings, and raised questions about the costs of such a program 

for employers and the federal government. There have also been proposals 

for state-supported retirement savings programs over the past several 

years. These state proposals also have the potential to expand retirement 

coverage, but on a state-by-state basis. Concerns have been expressed 

regarding the cost of these state proposals, as well as employer and 

employee interest in such plans, and potential legal barriers. 

Automatic IRA and 

State-Assisted 

Retirement Savings 

Plan Proposals Could 

Improve Access to 

Retirement Savings 

Vehicles for 

Uncovered Workers, 

but Each Proposal 

Faces Challenges 

Automatic IRAs Could 

Provide Benefits to More 

Workers, but Its Impact Is 

Uncertain 

A number of existing proposals have described in general terms the 

concept of an automatic IRA, and they contain common elements.39 Under 

the 2006 and 2007 congressional bills for automatic IRAs, employers that 

do not sponsor a retirement plan would be required to defer a percentage 

of an employee’s pay to an IRA through payroll deduction, unless the 

employee opts out. The requirement would apply to all employers with 

more than 10 employees and who had been in business for at least 2 years, 

or employers with 100 or more employees regardless of the length of time 

the employer has been in business. Eligible workers would be those who 

had worked for an employer for a specified period, were at least 18 years 

old, and were not eligible to participate in any other qualified retirement 

plan the employer sponsors. Affected employers could either (1) 

automatically enroll eligible workers, although employees would be 

offered the option to affirmatively opt out or (2) require that employees 

 

39S. 1141 and H.R. 2167, 110th Cong., 1st sess.; S. 3952 and H.R. 6210, 109th Cong., 2nd sess.; 

David C. John and J. Mark Iwry, Pursuing Universal Retirement Security Through 

Automatic Iras, Joint Written Statement before Subcommittee on Long-Term Growth and 

Debt Reduction Committee on Finance, United States Senate. Washington, D.C.: June 29, 

2006. The White House’s FY 2010 Budget Proposal also called for an automatic workplace 

pension program. Further, in its August 2009 proposals for financial regulatory reform, the 

Department of the Treasury called for the enactment of the automatic IRA (The 

Department of the Treasury, Financial Regulatory Reform: A New Foundation: 

Rebuilding Financial Supervision and Regulation (Washington, D.C.: Aug. 11, 2009)). At 

this writing, no bill for an automatic IRA had been introduced before the 111th (current) 

Congress. 

Page 25 GAO-10-31 Retirement Savings
 

make an explicit yes or no decision on whether to participate; workers not 

making such a decision would be automatically enrolled (see fig. 6). 

Employers would then transfer a portion of employees’ pay to either a 

traditional IRA or a Roth IRA through payroll deduction.40 Employers 

could elect to send contributions to IRAs of an employer-designated 

issuer, unless the employee selects his own IRA provider. If neither the 

employer nor the employee designates a specific IRA provider, the 

contributions would be deposited into federally designated default 

accounts. 

fault 

Figure 6: Steps Involved with Establishing an Automatic IRA 

Step 2 Step 3

Employees are

automatically 

enrolled, unless the 

employee opts out

Step 4

Employees are 

asked whether 

they would like 

to participate

Employee 

accepts offer

Step 1

Proceed to next step Expedited to steps 3-4

A:

B:

OR

OR

A:

C:

A: Contributions deposited in 

employer-designated IRA

B: Contributions are deposited 

in employee-designated IRA

C: Contributions are deposited 

in default account maintained 

and operated by private 

financial institutions under 

federal government. 

Source: GAO, Adobe systems incorporated. 

B:

Employee is

enrolled in IRA OR

Employee 

declines offer

Process ends

Employee does

not respond 

to offer

The automatic IRA is intended to help address the retirement security 

needs of those not already covered by an employer-sponsored retirement 

plan. Further, the automatic IRA is designed to extend the benefits of 

 

40A traditional IRA allows individuals to defer taxes on investment earnings accumulated in 

these accounts until distribution at retirement. A Roth IRA, in contrast, allows employees 

to make after-tax contributions to an IRA and, after age 591⁄2, take tax-free distributions of 

their investment earnings. Account owners can also make tax-free withdrawals of their 

contributions after age 591⁄2, as long as they have held the account for 5 years. 

Page 26 GAO-10-31 Retirement Savings
 

payroll-deduction savings and automatic features of 401(k)s.41 According 

to some experts, requiring employers to offer automatic IRAs is necessary 

for a number of reasons. First, employers have had the option to establish 

payroll-deduction IRAs for over 10 years, and for a number of reasons, 

very few employers have done so. As we previously reported,42 IRA 

providers have told us some employers may be reluctant to adopt a 

payroll-deduction IRA because they believe that their publicizing the 

payroll-deduction IRAs may be construed as an endorsement of the policy, 

which could potentially violate ERISA.43 Further, employers may not be 

aware of how payroll-deduction IRAs work and some small employers 

may not be aware that this option exists. The automatic enrollment 

component is necessary, according to designers of the automatic IRA, 

because various impediments would prevent many eligible employees 

from taking advantage of an available payroll-deduction IRA. For example, 

employees would have to decide whether to participate, select an IRA 

provider, select investment vehicles, and determine how much to 

contribute. These officials note that many workers may have difficulty 

overcoming inertia, and automatic enrollment would help them overcome 

this difficulty. 

Advocates for automatic IRAs and some pension industry experts reported 

that the automatic IRA could have a positive effect on retirement savings. 

According to the architects of the approach, automatic IRAs offer a 

powerful mechanism for accumulating retirement savings through regular 

payroll deposits that continue automatically. In light of the impact of 

Impact on Employees and 

Retirement Savings 

 

41We first reported on the potential benefits of automatic IRAs in our 2007 report Private 

Pensions: Low Defined Contribution Plan Savings May Pose Challenges to Retirement 

Security, Especially for Many Low-Income Workers, GAO-08-8 (Washington, D.C.: Nov. 29, 

2007). We projected DC plan savings assuming that all employees participate immediately, 

rather than waiting for eligibility or opting not to participate. We found that instant and 

universal participation not only raised average savings for the sample as a whole, but had a 

relatively strong impact on workers in the lowest income quartile. Although our projections 

were for DC plans, they suggested that automatic features intended to increase 

participation can have a strong impact on retirement savings levels. 

42See GAO, Individual Retirement Accounts: Government Actions Could Encourage More 

Employers to Offer IRAs to Employees, GAO-08-590 (Washington, D.C.: June 4, 2008). 

43Employers may establish payroll-deduction IRAs and are not subject to ERISA fiduciary 

requirements so long as they follow regulations set by the Department of Labor. Further, 

the Small Business Job Protection Act of 1996, Pub. L. No. 104-188, established SIMPLE 

IRAs specifically for the purpose of encouraging more employers to sponsor IRAs. SIMPLE 

IRAs were designed to encourage employers with 100 or fewer employees to assist workers 

with retirement savings. Under a SIMPLE IRA, an employer can both direct a portion of an 

employee’s salary to an IRA and offer a matching contribution. 

Page 27 GAO-10-31 Retirement Savings
 

automatic enrollment polices on participation in 401(k)s, an automatic 

IRA program that features default automatic enrollment could have a 

positive impact on participation rates. One study estimated that likely 

automatic IRA participants include younger, part-time, and lower- or 

moderate-income workers, as well as workers subject to higher than 

average job turnover. Advocates stated that automatic IRAs could help 

these employees overcome inertia since they would no longer need to take 

the initiative in order to save. Further, two pension industry experts told 

us that the payroll-deduction nature of automatic IRAs would ensure that 

employees of affected companies are saving on a regular basis. However, 

some experts agree that the automatic enrollment component of 

automatic IRAs has the potential to significantly increase the number of 

workers saving for retirement by including workers that currently do not 

have access to an employer-sponsored plan. 

Some caution, however, that the benefits resulting from the automatic IRA 

could be relatively small. A 2009 preliminary analysis funded by the 

Department of Labor illustrates potential outcomes of two automatic IRA 

scenarios using specific behavioral assumptions about participation and 

contribution rates, among other things.44 The analysis found that the 

resulting increase in average retirement benefits at age 70 is small (even 

when ignoring account fees and offsetting reductions in other savings) and 

is weighted toward the third of the population with the highest lifetime 

earnings. If actual participation rates in the automatic IRA are higher than 

the analysis assumes—and the experience of automatic enrollment in 

401(k)s indicates this is a possibility—the resulting increase in average 

retirement benefits could be higher. The Department of Labor is 

undertaking additional analysis to illustrate the effects of participation 

rates similar to those achieved in 401(k) plans with automatic enrollment. 

Participants may also not fully benefit from the tax incentives provided by 

automatic IRAs. According to analysis sponsored by AARP, 50 percent of 

automatic IRA participants would be lower-income. Therefore, with the 

exception of Social Security and Medicare taxes, they would pay little, if 

any, income tax and may not benefit from the tax incentives traditional 

 

44This analysis was conducted by the Policy Simulation Group at the request of the 

Department of Labor. The analysis considers the impact of an automatic IRA fully 

implemented in 2010 on the annual retirement benefits of individuals aged 70 in the year 

2065. The analysis creates a hypothetical birth cohort and models the cohort’s lives from 

birth to death, including all life events such as marriages, births, education and job 

decisions, pension coverage and behavior, and retirement. 

Page 28 GAO-10-31 Retirement Savings
 

IRAs offer. Further, while some participants would be eligible for the 

Saver’s Credit, one analysis estimated that the benefit of the credit could 

be limited. Because the credit is nonrefundable, it can only be used to 

offset income tax liability. If the participant does not have income tax 

liability up to the full amount of the credit, the full value of the credit can 

not be used. For example, the study concluded that if participants made 

the maximum permitted contributions to an automatic IRA, then nearly 90 

percent would not receive the full credit. In part to improve the tax 

incentive of automatic IRAs, the Department of Treasury, in August of 

2009, proposed making the Saver’s Credit fully refundable and depositing 

it automatically into IRAs.45

Finally, proper administration of accounts, including record keeping, will 

be important for managing and maintaining the retirement savings 

accumulated through the IRAs, according to some analyses and experts. 

For example, workers would be responsible for ensuring that they do not 

exceed applicable limits on annual contributions to an automatic IRA. An 

analysis sponsored by AARP and pension industry officials noted that it 

might be difficult for some workers to keep track of their accounts when 

they move from job to job or if their employer goes out of business.46 A 

2007 study noted that automatic IRA proposals do not impose recordkeeping responsibilities on employers, beyond withholding and 

transmitting IRA contributions. Because of this, the report noted that other 

entities must assume these responsibilities, and a companion report 

recommended a centralized administrator be responsible for record 

keeping. For example, the first report found that a central administrator 

could help prevent lost accounts by providing participants with annual 

reports including their contributions and investment earnings for the year, 

as well as the total account balance. In addition, the architects of the 

automatic IRA proposed that the federal government set up a standard 

default account and contract with private financial institutions for recordkeeping services, among other things, to make managing the IRAs easier. 

 

45The Department of the Treasury, Financial Regulatory Reform: A New Foundation: 

Rebuilding Financial Supervision and Regulation (Washington, D.C.: Aug. 11, 2009). 

46Mary M. Schmitt and Judy Xanthopoulos, Automatic IRAs: Are They Administratively 

Feasible, What Are the Costs to Employers and the Federal Government, and Will They 

Increase Retirement Savings?, Preliminary Report Prepared for AARP (Optimal Benefit 

Strategies, LLC, Mar. 8, 2007). 

Page 29 GAO-10-31 Retirement Savings
 

A variety of views exist regarding the cost and administrative burden that 

an automatic IRA would place on affected small employers. As one 

analysis of the automatic IRA concept noted, an automatic IRA has the 

potential to result in some costs and administrative burdens on small 

employers. The analysis noted that employers would need to provide 

employees with election forms and process paperwork with respect to 

employee elections or non-elections, choose an IRA provider or opt for the 

federally designated default investment, and withhold contributions from 

employees’ pay. Pension industry officials also stated that some small 

employers do not have payroll deduction systems and send paper or 

spreadsheet files to their record keepers and brokers. They told us that 

these employers may choose to invest in new infrastructure in order to 

remit automatic IRA contributions through payroll deduction. 

Impact on Employers 

Recent legislative proposals for an automatic IRA have recognized the 

potential challenges for small employers and contain provisions to 

mitigate their impacts. For example, the 2007 bills to authorize automatic 

IRAs would have exempted employers with fewer than 10 employees as 

well as those that had been in business for less than 2 years. According to 

some advocates, the proposals would have therefore avoided placing 

additional requirements on the smallest companies, which may not have 

electronic payroll-deduction systems. It would also relieve employers 

starting a new business from additional costs and administrative burdens. 

In addition, the proposals would establish a tax credit in the early years 

for participating employers with fewer than 100 employees to mitigate 

some administrative and startup costs. 

In light of these automatic IRA features, some experts and a recent 

analysis have found that additional costs may be small for most small 

employers. The architects of the automatic IRA concept have stated that 

because many employers already make deductions for federal income tax 

and payroll tax withholdings, making IRA payroll deductions would 

impose little, if any, new administrative costs. Further, they said these 

employers would not have to bear the costs involved in maintaining a 

retirement plan, such as matching employee contributions. These views 

were supported by a 2009 report sponsored by AARP, which found that 

most small employers would face low costs to implement the automatic 

IRA.47 This study noted, for example, that about 97 percent of employers 

 

47Most Small Employers Face Low Costs to Implement Automatic IRAs, a report prepared 

for AARP (Optimal Benefit Strategies, LLC, Aug. 19, 2009). 

Page 30 GAO-10-31 Retirement Savings
 

with 10 or more employees had automated payroll systems, and such 

employers would face relatively few burdens implementing the automatic 

IRA. The report also found that payroll software companies and payroll 

service providers are likely to adopt automatic IRA requirements in their 

services to small employers. For the estimated 3 percent of affected 

employers that process payroll manually, the automatic IRA would also 

have to be implemented manually. 

Past proposals have described a federal role that could mitigate some of 

the difficulties and risks of implementing an automatic IRA. For example, 

the proposals would have created a new federal entity that would, among 

other things, establish low-cost default investments.48 According to experts 

we contacted and analyses we reviewed, establishing an automatic IRA 

policy would require tax incentives to make it more affordable to some 

employers and federal expenditures to establish and govern the program, 

among other things.49 However, analyses sponsored by AARP found that it 

is not possible to determine what the costs would be to the federal 

government without a more detailed proposal. Further, these studies 

reported that the establishment of an automatic IRA would reduce federal 

tax revenues as a result of the tax credit available to small employers, 

individual tax benefits from deferred employee income, and greater use of 

the Saver’s Credit. Two analyses estimated that the revenue losses could 

amount to somewhere between $2 billion and $19 billion over 10 years. 

Impact on the Federal 

Government 

Industry officials and some experts we contacted also noted that 

establishment of an automatic IRA could affect the market for 401(k) 

plans. For example, some pension industry experts and representatives of 

two national organizations representing large plan sponsors noted that if 

automatic IRAs are made too attractive, they might displace 401(k)s and 

Savings Incentive Match Plan for Employees of Small Employers 

Impact on 401(k) Plans 

 

48Although the 2007 House and Senate bills for an automatic IRA included establishment of 

a governing board modeled on the Federal Thrift Investment Board—a so-called TSP II 

Board—the bill did not, as the AARP-sponsored analysis noted, clearly delineate the 

amount of reporting and record keeping that would be required. 

49For example, the Department of Labor’s enforcement activities currently include pursuing 

401(k) plan payroll deductions that are not remitted to employees’ accounts in a timely 

manner. Department of Labor officials stated that the government would have to undertake 

similar activities in instances where automatic IRA payroll deductions are not timely 

remitted. 

Page 31 GAO-10-31 Retirement Savings
 

(SIMPLE) plans.50 These officials said that an employer might forego 

adopting a 401(k) plan if they have already been required to facilitate an 

automatic IRA, and that this would be unfortunate because an IRA is in 

many ways an inferior option for workers. The officials told us that a 

401(k) plan can offer workers better benefits, such as an employer match 

and higher contribution rates.51 In addition, some of the officials reported 

that the existence of a 401(k) creates a workplace culture that encourages 

participation in retirement saving. Further, an AARP-sponsored analysis 

noted that small businesses will weigh the costs of establishing or 

maintaining a qualified retirement plan against the costs of complying with 

the automatic IRA requirements. To the extent that the automatic IRA 

approach offers significantly lower costs—including the relative costs of 

fiduciary liability—employers may decide against adopting a 401(k) plan 

or may eliminate an existing one.52 In light of concerns such as these, 

officials of one large financial services firm said that, if implemented, the 

automatic IRA program should be evaluated to determine if it led to a shift 

away from 401(k) plans. 

Others, however, have stated that the automatic IRA is not likely to erode 

the popularity of 401(k) plans, and may even promote greater adoption of 

such retirement vehicles. Some experts noted that the potential for 

automatic IRAs to supplant 401(k)s can be minimized by careful design of 

the program. Perhaps most importantly, they said that the maximum 

annual savings for an automatic IRA should be designed so that it is less 

attractive to a small business employer than a 401(k). Specifically, they 

noted that it is important that the automatic IRA not permit contributions 

above the current IRA dollar limits to avoid competing with qualified 

plans. These advocates reason that the potential tax advantage of a 401(k) 

enables a small business owner—who, along with his employees, may 

choose to participate in the 401(k) or IRA plan his business sponsors—to 

save a much higher percentage of his tax-deferred income than does an 

automatic IRA, making the 401(k) plan a more attractive option. Further, 

some industry experts told us that an automatic IRA would likely be a 

stepping stone toward adopting a 401(k) for some small employers. For 

 

50An employer with 100 or fewer employees may establish a SIMPLE plan. A SIMPLE plan 

is a simplified retirement plan for small employers that is not subject to some of the same 

requirements that the Internal Revenue Code imposes on qualified pension plans. 

51The 2009 maximum annual tax-favored contribution levels are as follows: $5,000 for a 

traditional or Roth IRA, $11,500 for a SIMPLE IRA, and $16,500 for a 401(k). 

52Schmitt and Xanthopoulos 2007. 

Page 32 GAO-10-31 Retirement Savings
 

example, according to an official of one large organization representing 

pension professionals stated that payroll deduction automatic IRA 

arrangements will ultimately encourage more employers to sponsor 401(k) 

plans, and contribute on their employees’ behalf. 

State-Assisted Retirement 

Savings Proposals Intend 

to Increase Retirement 

Plan Savings but Raise 

Questions Regarding 

Participation, Program 

Design, and Legal Barriers 

In recent years, 10 states have considered proposals that would involve 

state governments in facilitating retirement savings plans for workers 

whose employer does not sponsor a plan.53 One study on such state 

proposals reported that employers would like to provide a retirement 

savings vehicle for their employees, but are inhibited by the cost, 

complexity, and time that would be required to do so. 

Under the proposals, state governments could take a number of actions to 

help address some of these issues and facilitate the use of payrolldeduction or SIMPLE IRAs or the adoption of 401(k) plans. For example, a 

state would promote private pension coverage and facilitate retirement 

savings for small business, moderate-income, and lower-income 

workers—who are less likely to be covered by an employer-sponsored 

plan—by acting as an intermediary between employers and financial 

institutions. In addition, a state could help small employers pool their 

investments and administrative activities. 

The type of retirement plans that would be established by the programs 

varies. For example, California’s proposal would establish a payrolldeduction, traditional, or SIMPLE IRA, or a combination of these options; 

Connecticut’s proposal would establish a 401(k) or other type of defined 

contribution plan; and proposals in Maryland and Washington would 

establish a defined contribution plan and IRA options.54 Regardless, the 

state would initiate and oversee the programs, while private-sector 

companies under contract to the state would manage the investment 

vehicles and day-to-day administration. For example, a Washington study 

 

53The 10 states are California, Connecticut, Maryland, Massachusetts, Michigan, 

Pennsylvania, Rhode Island, Vermont, Virginia, and Washington. We focused our analysis 

on proposals in four states—California, Connecticut, Maryland, and Washington—because 

these proposals cover a range of retirement plan options, among other criteria (for more on 

selection criteria, see app. I). 

54See Cal. Assembly Bill No. 125, 2009-10 Regular Session; Conn. General Assembly Raised 

Bill No. 971, January Session, 2009; Md. Senate Bill 728 and House Bill 1228, 2008 Regular 

Session; Wash. Second Substitute Senate Bill 5791 and House Bill 1893, 61st Legislature, 

2009 Regular Session. 

Page 33 GAO-10-31 Retirement Savings
 

outlined an option under which the state would design the basic features 

of a 401(k) plan and market the plan to private-sector employers who do 

not currently offer a plan. The state would then contract with a privatesector plan administrator to provide access to investment funds, direct 

customer service, Web-based account access, and to distribute account 

statements and other communications. Table 2 shows examples of state 

roles and the intended impact of automatic IRAs under existing proposals. 

Table 2: Examples of State Roles and Intended Impact under Existing Proposals 

Potential state role Intended impact 

Publicize program and 

provide information to 

employers 

Through outreach and marketing, the state could inform smaller 

employers abut the availability and benefits of 401(k) plans or 

payroll-deduction IRAs. As a result, small employers would 

become aware of the state program and the benefits their 

employees would derive from participation. 

Develop, approve, and 

help market a 

prototype 401(k) plan 

A prototype plan document would facilitate employer 

participation by eliminating a potentially high up-front cost. Such 

a document could be developed using in-house expertise in 

coordination with private-sector financial firms. 

Negotiate on behalf of 

small employers and 

contract with service 

providers 

The state would have bargaining power with financial service 

providers in light of the prospect that the program could grow to 

large scale. For example, through competitive bidding the state 

could negotiate for services that are low in cost and incorporate 

best practices. 

Pool savings of 

employees of small 

employers 

By facilitating the pooled savings of numerous small accounts, 

the state would obtain lower-cost retirement plans. Small 

employers are less likely to sponsor retirement plans in part 

because of higher per capita costs and because financial 

service providers are less likely to be interested in serving small 

accounts. 

Assist employers with 

plan administration and 

compliance 

By providing participating small employers with convenient and 

professional assistance with plan investments, administrative 

tasks, and compliance, the state would further encourage small 

employers to adopt a plan or facilitate a payroll-deduction IRA. 

Source: GAO analysis. 

Program Participation: Little is known about the extent to which 

employers and employees would participate in a state-assisted retirement 

savings program. According to representatives of two organizations in 

favor of state-assisted retirement savings plans, employer and employee 

interest in such a program could be considerable. Moreover, one of the 

representatives noted that proposals in Washington and other states have 

been specifically designed to address small companies’ concerns that the 

cost of setting up payroll deduction prevents them from adopting a 401(k) 

plan or a payroll-deduction IRA. However, no known rigorous assessment 

Challenges States Would Face 

Page 34 GAO-10-31 Retirement Savings
 

exists of the extent to which small employers or employees would opt to 

participate in such a program. We obtained state-sponsored studies from 

three of the four states we examined, and while none of the studies 

included an analysis measuring the magnitude of the market demand for 

such a program, two noted concerns regarding the potential demand for a 

state program. For example, a study prepared for the Maryland legislature 

compared a Maryland proposal to a number of other state financial 

programs, such as a state-sponsored college savings program.55 In 

comparing the two, the report noted that the college savings program 

offers distinctive tax and pre-payment guarantee advantages that are not 

otherwise available in the private market. However, the study noted that 

this distinction, which helps ensure a market demand for the college 

savings plans, would not exist for the state-assisted retirement program. 

The report noted that there will be no additional employee tax benefit for 

participants in the proposed state-assisted retirement savings program 

and, for that reason, the program would have to compete on an equal 

footing with plans in the marketplace. The Maryland analysis concluded 

that the program might be difficult to establish or market in the absence of 

a federal requirement that all employers have a retirement savings plan. 

Representatives of the financial services industry also indicated that stateassisted programs to some extent could have a “zero-sum” effect. In 

commentary on the Connecticut proposal in March of 2008, the Small 

Business Council of America (SBCA) and American Society of Pension 

Professionals and Actuaries (ASPPA) stated that low-cost retirement 

options exist now, and the state-assisted program would result in little 

difference in cost. The SBCA and ASPPA added that state government 

should not compete with small private businesses unless there is a clear 

market failure or some inherent unfairness that disadvantages its citizens. 

Representatives of the Connecticut Bankers Association were concerned 

that rather than expand retirement savings vehicles to new employees, the 

state program would attract the “already served market” with initial low 

costs. Similarly, an SBCA representative stated that providing retirement 

services to small employers is not very profitable for financial services 

firms, and if such a proposal resulted in the state obtaining half of the 

small business market, for example, it is conceivable that large plan 

administrators would exit the business since they only profit in this sector 

though large volume. Further, a fiscal analysis of a Washington state 

 

55Michael Rubenstein, Maryland Voluntary Employee Accounts Program Study 

(Annapolis: January 2008). 

Page 35 GAO-10-31 Retirement Savings
 

proposal noted that the program would have no initial plan assets and 

uncertain levels of participation and, as a result, vendors may have 

difficulty estimating the total cost of record-keeping services. This, in turn, 

could affect vendor interest in providing services for the program. 

Program Design and Costs to State: Studies from California, Maryland, 

and Washington about the feasibility of state-assisted retirement savings 

programs identified important questions about program design and related 

costs. For example, state governments will need to determine the extent to 

which administrative and management responsibilities will be borne by 

the state, and how much will be contracted out to financial services 

providers. States would also need to determine what types of investment 

funds will be used, including any default funds. Further, analyses from the 

three states showed they would face initial and ongoing costs. In addition, 

a fiscal analysis of the Washington proposal identified three major costs 

categories—including program development and administration, 

communications and marketing, and record keeping. As table 3 illustrates, 

the Washington analysis estimated a total cost of about $4.4 million to 

implement and operate the program in the first 2 years. 

Table 3: Estimated Program Development and Operation Costs in Washington State 

Cost category Examples Estimated costsa

Program development and 

ongoing administration 

• Working with a contracted defined contribution consultant: 

• Develop program design 

• Conduct procurement process for obtaining record keeper and vendors 

• Create communication plans 

• Test systems, processes, and communications materials 

• Provide oversight of program, including legal support and analysis, 

contract management, and financial reporting 

$2,224,000

Communication and marketing • Develop statewide marketing and communication program targeted toward 

employers and employees 

• Publish and disseminate participant and employer communications through 

mailings and other media such as TV, radio, and Web 

$1,606,000

Record keeping • Contract with third-party record keeper to provide record-keeping service, 

including: 

• Daily valuations of participant accounts 

• Quarterly statements 

• Customized Web site 

• Internet account access 

$575,000

Total $4,405,500

Source: Fiscal Note to Washington Senate Bill 5791. 

a

Cost estimates are for 2009-2011. The estimate indicated that comparable total costs would also be 

incurred in future years. 

Page 36 GAO-10-31 Retirement Savings
 

Lack of startup funding may be a significant barrier in some states. While 

the Maryland and Connecticut proposals allow for state budget 

appropriations (which may later be recovered through participant fees), 

the California proposal stated that initial funding could come from a state 

budget appropriation or a non-profit or private entity. However, state 

budget appropriations may be difficult to obtain given these states’ current 

budget shortfalls. The Washington proposal stated that its program could 

not be started until the state had obtained federal and/or philanthropic 

funds sufficient to support the first 3 years of the program. According to 

an advocate for the Washington proposal, his organization recognized that, 

due to the current economy, the states are not in a position to self-fund 

state-assisted retirement savings programs. He reported that his 

organization has been working on obtaining federal funds to cover the 

startup costs of such programs. 

Legal and Regulatory Challenges: State-assisted savings programs 

would also have to comply with both federal and state law that, according 

to the state analyses, could provide additional challenges. One analysis 

noted that states would need to obtain requisite federal approvals to 

ensure that the programs adhere to all federal requirements governing the 

operation of retirement plans. For example, if the program establishes 

401(k) accounts, the state would need to submit plan documents to the 

IRS and Department of Labor for approval. Further, the Maryland and 

Washington analyses found that if a state sponsored the establishment of a 

401(k) plan, such plans would be subject to ERISA’s fiduciary 

requirements and expose either the state or the employer to potential 

liability in the event that participants suffer financial losses. According to 

the Maryland analysis, participants may try to hold the state or the 

employer liable if they incur investment losses after being sold an 

investment unsuitable for their needs or if they received misleading 

communications about investments. However, both analyses noted that 

there are steps the states can take to minimize their liability. For example, 

according to the Maryland study, the state could limit investment options 

to reduce the possibility of unsuitable choices or miscommunication. 

The Washington and Maryland analyses discussed a number of other 

potential liabilities that states could face. For example, the Maryland 

analysis noted that a failure to file required forms and conduct 

transactions under applicable standards could subject the state or 

employers to significant penalties imposed by IRS or the Department of 

Labor. Officials from Washington noted that a 401(k) option could create a 

new and complex compliance and monitoring role for the state retirement 

agency and that it could be administratively difficult for the state to 

Page 37 GAO-10-31 Retirement Savings
 

assume this role. They added that the state would face a steep learning 

curve in addressing ERISA and liability issues, and might have to contract 

with outside expertise to deal with compliance and oversight issues. 

The state role envisioned in the proposals may be precluded by some 

states’ constitutions. Analyses of proposals in California and Washington 

specifically cited aspects of the state constitutions that could affect the 

states’ ability to operate a plan. For example, California’s constitution 

prohibits the gift or loan of state credit to associations, companies or 

corporations, and prohibits the state from loaning its credit, subscribing 

to, or being interested in the stock of any company, association, or 

corporation.56 According to the California study, although California’s 

constitution specifically exempts the retirement board of a public 

retirement system from this prohibition, it is not clear whether the 

exemption would extend to a program for private-sector employees. The 

California study noted that if the program is structured in such a way that 

the state internally manages funds associated with the program, this could 

be seen as the state having a financial interest outside the limits of the 

public employees’ retirement fund. The California study also observed that 

a constitutional amendment may be needed to address this issue. 

Washington’s constitution has a similar prohibition.57 The Washington 

report noted that the proposed retirement savings program may be 

permissible because it serves a public purpose by helping individuals save 

for retirement and reducing the risk that individuals will rely on state 

assistance in the absence of adequate retirement savings. However, the 

report also noted that no Washington case has considered proposals 

similar to those discussed in the report. The report concluded that it was 

not possible to predict how a court would rule should the program be 

challenged. In addition, because no other states have enacted such 

programs, there is no guidance available from other courts. 

Automatic enrollment of workers in 401(k) plans has proven to be an 

effective means of increasing plan participation rates. Because such 

policies are being increasingly adopted by defined contribution plan 

sponsors in the wake of the Pension Protection Act of 2006, many 

additional workers will be brought into plans who might not otherwise 

have participated. Nonetheless, a number of considerations could 

Concluding 

Observations 

 

56CA Const. art. XVI, § 17. 

57WA Const. art. VIII, § 5 and art. XII, § 9. 

Page 38 GAO-10-31 Retirement Savings
 

potentially limit the extent or impact of such policies. First, the benefits of 

automatic enrollment are inherently limited to workers that have access to 

an employer-sponsored plan but do not participate. Second, some types of 

employers, such as employers with high-turnover workforces and small 

employers, may find automatic enrollment too costly or inappropriate for 

their workforce. Third, initially low default contribution rates and the 

absence of default automatic escalation policies at some plans may result 

in inadequate long-term savings for some workers. 

Automatic IRAs may hold promise for workers who do not have access to 

an employer-sponsored plan. The proposal has potential in that it could 

foster retirement savings among the roughly 40 percent of the workforce 

whose employers do not sponsor a plan. As such a policy is designed, 

however, a number of important issues remain to be considered. For 

example, it is not clear that an automatic IRA will offer low-income 

workers a significant benefit. Further, in order to ensure that the intended 

beneficiaries accumulate and retain savings, some central 

administration—possibly by the federal government—may be required to 

assume significant and long-term involvement for record keeping and 

administration. The nature and costs of such a role have not yet been 

publicly assessed or compared against the potential benefits and 

limitations of an automatic IRA. In addition, while state-assisted 

retirement savings plans may also hold some promise for expanding 

retirement coverage for workers, none of these proposals has been 

enacted and they could face significant legal barriers to implementation. 

Both the growth of automatic enrollment and the introduction of automatic 

IRA proposals have brought renewed attention to the question of how to 

extend retirement coverage to the half of the workforce not covered by an 

employer-sponsored plan. This is an important step forward, as past debate 

over retirement security has largely focused on increasing retirement 

savings for those already participating in retirement plans. As plan sponsors 

and participants gain more experience with automatic enrollment, it will be 

helpful to learn from these experiences, especially in light of the recent 

recession. The lessons learned may have important implications for related 

401(k) plan features, such as automatic escalation, and for the potential 

feasibility and usefulness of automatic IRA and state-assisted retirement 

savings proposals. Further, it would also be helpful to carefully consider the 

various concerns raised in the automatic IRA debate to increase the 

likelihood that, if such a proposal becomes law, it is administered in an 

efficient and effective way. Finally, while state efforts could be helpful in 

increasing the number of workers saving for retirement, these efforts may 

not be necessary depending on the potential implementation of automatic 

Page 39 GAO-10-31 Retirement Savings
 

IRAs. Further, fiscal difficulties in some states may make such proposals 

difficult to implement in the near future. 

We provided a draft of this report to the Department of Labor and the 

Department of the Treasury for review and comment. The Department of 

Labor generally agreed with our findings. With regard to the potential 

impacts of an automatic IRA on retirement benefits, Labor said that the 

Employee Benefits Security Administration is undertaking additional 

analysis to illustrate the effect of higher participation rates, similar to 

those achieved in 401(k) plans. The Department of Labor provided 

technical comments, which we incorporated as appropriate. The 

Department of Labor’s formal comments are reproduced in appendix II. 

Agency Comments 

The Department of the Treasury also generally agreed with our findings, 

and provided technical comments, which we incorporated as appropriate. 

The Department of the Treasury’s formal comments are reproduced in 

appendix III. 

As agreed with your office, unless you publicly announce its contents 

earlier, we plan no further distribution until 30 days after the date of this 

letter. At that time, we will send copies of this report to the Secretary of 

Labor, the Secretary of the Treasury, appropriate congressional 

committees, and other interested parties. In addition, the report will be 

available at no charge on GAO’s Web site at http://www.gao.gov. 

If you have any questions concerning this report, please contact Barbara 

Bovbjerg at (202) 512-7215. Contact points for our Office of Congressional 

Relations and Public Affairs may be found on the last page of this report. GAO 

staff who made major contributions to this report are listed in appendix II. 

Sincerely yours, 

Barbara D. Bovbjerg 

Director, Education, Workforce, 

 and Income Security Issues 

Page 40 GAO-10-31 Retirement Savings
Appendix I: Scope and Methodology 

Page 41 GAO-10-31 Retirement Savings 

To determine what is known about the effect of automatic enrollment 

policies among the nation’s defined contribution plans, as well as the 

extent of and prospects for such policies, we first reviewed reports 

examining the impact of automatic enrollment, default contribution rates, 

and default investment funds on participation rates and saving patterns. 

Table 4 shows the six reports presenting original research that we 

reviewed. 

Table 4: Six Studies We Reviewed on the Impact of Automatic Enrollment and 

Related Policies 

Study Authors (year of study) 

Measuring the Effectiveness of Automatic 

Enrollment 

Vanguard Center for Retirement Research 

(2007) 

For Better or For Worse Choi et al. (2001) 

Nationwide Savings Plan Automatic 

Enrollment Getting Associates PREPared 

for Retirement 

Swanson and Farnen (2008) 

The Power of Suggestion Madrian and Shea (2001) 

Building Futures Volume VIII Fidelity Investments (2007) 

The Importance of Default Options for 

Retirement Saving Outcomes: Evidence 

from the United States 

Beshears et al. (2008) 

Source: GAO. 

Officials at the Department of Labor, as well as other pension industry 

experts, verified our selections. The six reports include two conducted by 

large plan administrators that analyzed the records of their respective 

defined contribution plan sponsors and participants. The remaining four 

reports conducted case studies of companies that adopted automatic 

enrollment and analyzed participation rates, contribution rates, and 

investment fund allocations before and after the policy was implemented. 

For each study, we analyzed available evidence on: (1) the impact of 

automatic enrollment on participation rates and the durability of any 

increases in participation, (2) the characteristics of the workers whose 

participation rates are affected by automatic enrollment,(3) the impact of 

automatic enrollment on contribution rates, and (4) the impact of 

automatic enrollment on selection of investment funds. However, the 

findings of these case studies may not be generalizable for three reasons. 

First, each study examined the experience of only one to three companies. 

Second, many of the companies in the four case studies seem to have been 

facing difficulty meeting nondiscrimination testing requirements. Third, 

some offered matching contributions to their employees and it is unclear 

Appendix I: Scope and Methodology 
Appendix I: Scope and Methodology 

Page 42 GAO-10-31 Retirement Savings 

whether the presence of a match affects automatic enrollment 

participation rates. Therefore, the experiences of these companies may 

not be representative of all 401(k) sponsors. 

To determine the extent to which plans had adopted automatic enrollment 

policies, we obtained data from two large plan administrators—Fidelity 

Investment and Vanguard Investments. Data from Fidelity represents the 

18,100 qualified defined contribution plans Fidelity administers, 

encompassing about 14 million plan participants and over $600 billion in 

assets. Data from Vanguard is drawn from Vanguard’s universe of defined 

contribution plans—more than 2,200 qualified plans that encompass more 

than 3 million participants and almost $200 billion in assets. We 

determined that these data accurately reflect the experience of Fidelity 

and Vanguard, but are not necessarily representative of the universe of 

defined contribution plans. 

We conducted in-depth interviews with 12 plan sponsors to obtain their 

perspectives on their experiences with automatic enrollment and related 

policies, as well as prospects for the policies. We used Form 5500 data 

from the Department of Labor to select a sample that included plan 

sponsors from a variety of industries including those that may be 

considered to have low wages and high turnover, and vice-versa, and 

small, medium, and large plans, as measured by number of participants. 

Six of the plan sponsors had adopted automatic enrollment, including one 

that had significantly narrowed the scope of its automatic enrollment 

policy, two that had adopted a 401(k) plan within the past 5 years, and 10 

that have sponsored a 401(k) plan for more than 5 years. The remaining 

six plan sponsors have not adopted automatic enrollment. Table 5 shows 

the industries and plan sponsor sizes for the 12 sponsors that we 

contacted. 
Appendix I: Scope and Methodology 

Page 43 GAO-10-31 Retirement Savings 

Table 5: Industries and Plan Sponsor Sizes 

Industry Number of plan sponsors

Professional and business services 1

Utilities 1

Manufacturing 2

Accommodation and food services 1

Arts, entertainment, and recreation 1

Transportation and warehousing 1

Information 1

Finance and insurance 2

Retail trade 2

Plan size 

Small (<150 employees) 3

Medium (150-4,999 employees) 3

Large (>5,000 employees) 6

Source: GAO analysis of Form 5500 data from the Department of Labor. 

In addition, we conducted interviews with officials at the Departments of 

the Treasury and Labor, as well as academic experts from the Employee 

Benefits Research Institute (EBRI), Brookings, The Heritage Foundation, 

Harvard University, and the New School of Social Research. We also 

interviewed 401(k) plan administrators, providers, and consultants 

including Deloitte, Fidelity Investments, Vanguard, Mercer, Watson Wyatt, 

T. Rowe Price, ADP, State Street Global Advisors, and Renaissance 

Institutional Management. Finally, we interviewed industry and research 

organizations such as the Investment Company Institute (ICI), the Pension 

Rights Center (PRC), AARP, the Profit Sharing/401(k) Council of America 

(PSCA), the American Benefits Council (ABC), American Society for 

Pension Professionals and Actuaries (ASPPA), the Center for American 

Progress (CAP), the AFL-CIO, the Small Business Council of America 

(SBCA), and the Committee on Investment of Employee Benefit Assets 

(CIEBA). 

To determine the potential benefits and limitations of automatic IRA 

proposals and state-assisted retirement savings plan proposals, we 

analyzed the Automatic IRA Acts of 2006 and 2007 as well as state-assisted 

retirement savings proposals from four states. The Economic Opportunity 

Institute identified nine states that have introduced state-assisted 

retirement savings proposals: California, Connecticut, Maryland, 

Massachusetts, Michigan, Pennsylvania, Rhode Island, Vermont, Virginia, 
Appendix I: Scope and Methodology 

Page 44 GAO-10-31 Retirement Savings 

and Washington.1 In addition, the architect of the state-assisted 

retirement savings concept identified Vermont as having introduced a 

proposal. We selected four—California, Connecticut, Maryland, and 

Washington—for an in-depth review because these states covered a range 

of plan type offerings and we were able to obtain feasibility studies or 

testimony prepared for state congressional hearings on their proposals. 

We did not conduct an independent legal review of these proposals. We 

analyzed the work of two researchers from Brookings and The Heritage 

Foundation that have developed proposals for the automatic IRA and 

state-assisted retirement savings plans. We then reviewed four studies 

sponsored by AARP examining the feasibility of automatic IRAs; survey 

reports by AARP and Prudential on employee and employer attitudes 

toward automatic IRAs; a microsimulation analysis of the impact of 

automatic IRAs on workers’ savings accumulations and retirement 

security; and three feasibility studies on California, Maryland, and 

Washington states’ proposals. In addition, we reviewed testimony and 

written materials from hearings held in Connecticut and Washington to 

obtain the perspectives of state officials, small business representatives, 

and pension industry representatives on state-assisted retirement savings 

proposals. We also reviewed relevant federal laws and regulations. 

We interviewed researchers who have focused on the topic, including 

those from Brookings, The Heritage Foundation, EBRI, the Economic 

Opportunity Institute, Harvard University, and the New School for Social 

Research as well as officials from AARP, PSCA, ASPPA, CIEBA, ABC, ICI, 

CAP, and PRC. In addition, we interviewed state officials from 

Washington, Maryland, and California as well as officials from pension 

plan administrators and consultants, including Mercer, Watson Wyatt, T. 

Rowe Price, ADP, State Street Global Advisors, and Renaissance 

Institutional Management. Finally, we interviewed a 401(k) consultant for 

small businesses and an official from SBCA to obtain the perspective of 

representatives of the small business community. 

 

1

 The Economic Opportunity Institute is a non-profit public policy organization located in 

Washington state that focuses on retirement security and several other issues. 
Appendix II: Comments from the Department 

of Labor 

Page 45 GAO-10-31 Retirement Savings 

Appendix II: Comments from the Department 

of Labor 
Appendix II: Comments from the Department 

of Labor 

Page 46 GAO-10-31 Retirement Savings 
Appendix III: Comments from the Department Appendix III: Comments from the of the Treasury 

Department of the Treasury 

Page 47 GAO-10-31 Retirement Savings 
Appendix III: Comments from the Department 

of the Treasury 

Page 48 GAO-10-31 Retirement Savings
Appendix IV: GAO Contact and Staff 

Acknowledgments 

Page 49 GAO-10-31 

Appendix IV: GAO Contact and Staff 

Retirement Savings tirement Savings 

Barbara D. Bovbjerg (202) 512-7215 or bovbjergb@gao.gov

David Lehrer, Assistant Director, and Michael Hartnett, Analyst-in-Charge, 

managed this review. Jennifer Gregory also led portions of the research 

and made significant contributions to this report in all aspects of the work. 

Edward Nannenhorn and Jay Smale provided methodological assistance. 

Kate van Gelder provided assistance with report preparation. Roger 

Thomas provided legal assistance. Ashley McCall assisted in identifying 

relevant literature. Cheron Brooks developed the report’s graphics. 

Charlene Johnson, Michaela Monaghan, and Bryan Rogowski verified our 

findings. 

Acknowledgments 

GAO Contact 

Staff 

Acknowledgments 
Selected Bibliography on Automatic Selected Bibliography on Automatic Enrollment 

Enrollment 

Beshears, John, James J. Choi, David Laibson, and Brigitte C. Madrian. 

“The Importance of Default Options for Retirement Saving Outcomes: 

vidence from the USA.” Chapter 3 in Lessons from Pension Reform in 

ume VIII: A Report on Corporate Defined 

ontribution Plans. Boston, Mass.: 2007. 

Choi, James J., David Laibson, Brigitte C. Madrian, and Andrew Metrick. 

“For Better or For Worse: Default Effects and 401(k) Savings Behavior.” 

Chapter 2 in Perspectives on the Economics of Aging, edited by David A. 

Wise. Chicago: University of Chicago Press, June 2004. 

—. “Saving for Retirement on the Path of Least Resistance.” Chapter 11 in 

Behavioral Public Finance, edited by Edward J. McCaffery and Joel 

Slemrod. New York, N.Y.: Russell Sage Foundation, 2006. 

Madrian, Brigitte C. and Dennis F. Shea. “The Power of Suggestion: Inertia 

in 401(k) Participation and Savings Behavior.” The Quarterly Journal of 

Economics, vol. CXVI, no. 4 (November 2001): 1149-1187. 

Mitchell, Olivia S. and Stephen P. Utkus. “Lessons from Behavioral 

Finance for Retirement Plan Design.” Chapter 1 in Pension Design and 

Structure New Lessons from Behavioral Finance, edited by Olivia S. 

Mitchell and Stephen P. Utkus. New York, N.Y.: Oxford University Press 

Inc., 2004. 

Nessmith, William E., Stephen P. Utkus, and Jean A. Young. Measuring the 

Effectiveness of Automatic Enrollment. Valley Forge, Pa.: Vanguard 

Center for Retirement Research, December 2007. 

Swanson, Mark D. and D. Bryan Farnen. “Nationwide Savings Plan 

Automatic Enrollment Getting Associates PREPared for Retirement.” 

Benefits Quarterly, vol. 24, no. 3 (Third Quarter 2008): 13-19. 

E

the Americas, edited by Stephen J. Kay and Tapen Sinha. New York: 

Oxford University Press Inc., 2008. 

Copeland, Craig. Use of Target-Date Funds in 401(k) Plans, 2007. Issue 

Brief 327. Washington, D.C.: Employee Benefits Research Institute, March

2009. 

Fidelity Investments. Building Futures: Auto Solutions Data. Boston, 

Mass.: September 2008. 

—. Building Futures Vol

C

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