“The Impact of Automatic Enrollment on Debt”*

Does automatic enrollment into a retirement plan increase financial distress due to increased borrowing outside the plan? We study a natural experiment created when the U.S. Army began automatically enrolling newly hired civilian employees into the Thrift Savings Plan. Four years after hire, automatic enrollment increases cumulative contributions to the plan by 4.1% of annual salary, but we find little evidence of increased financial distress. Automatic enrollment causes no significant change in credit scores (point estimate = +0.001 standard deviations), debt balances excluding auto debt and first mortgages (point estimate = -0.6% of annual salary), or adverse credit outcomes such as late balances or balances in collection, with the possible exception of increased first mortgage balances in foreclosure.

*Co-authored with J.J. Choi (Yale University), D. Laibson (Harvard University), B.C. Madrian (Brigham Young University) and W. Skimmyhorn (William & Mary)

“Does Pension Automatic Enrollment Increase Debt? Evidence from a Large-Scale Natural Experiment”*

Does automatic enrollment into retirement saving increase household debt? We study the randomized roll-out of automatic enrollment pensions to ~160,000 employers in the United Kingdom with 2-29 employees. We find that the additional savings generated through automatic enrollment are partially offset by increases in unsecured debt. Over the first 41 months after enrollment, each additional month increases the average automatically enrolled employee’s pension savings by £32-£38, unsecured debt (such as personal loans and bank overdrafts) by £7, the likelihood of having a mortgage by 0.05 percentage points, and mortgage balances by £118. Automatic enrollment causes loan defaults to fall and credit scores to rise modestly.

*Co-authored with M. Blakstad, J.J. Choi (Yale University), C. Furth, J. Gathergood, D. Laibson (Harvard University), R. Notley, J.D. Sheth, W. Sandbrook & N. Stewart.

General information:

Attendance to this seminar is possible by invitation only. Please send an e-mail to finsec-abs@uva.nl if your are interested in attending this seminar.