Impact of defaults on participation in state supplemental retirement savings plans

This study examines the impact of the adoption of automatic enrollment provisions by the state of South Dakota for its supplemental retirement saving plan (SRP). In South Dakota, state and local government employees, including teachers, are covered by a defined benefit pension plan and by Social Security. Prior to the introduction of automatic enrollment, the proportion of newly hired employees who were contributing to the SRP was less than 5% in their first year of employment. After the introduction of automatic enrollment, over 90% of newly hired workers who were auto-enrolled were participating in the plan. Using a difference-in-difference approach we find that automatic enrollment changes differences in the participation rate by age, sex, and income. We also find that prior to the adoption of auto-enrollment, agencies that ultimately chose to implement this policy had higher participation rates compared to those that did not adopt auto-enrollment.