Automatic Enrollment and Participation in South Dakota’s Supplemental Retirement Saving Plan

Automatic enrollment has proven to be a powerful means of encouraging retirement plan participation in the private sector.

Summary

Numerous studies suggest that automatic enrollment increases participation in retirement saving plans. But virtually all of this research pertains to private sector firms offering only a 401(k) plan. In contrast, no major study to date has looked at how automatic enrollment affects participation in supplemental retirement plans offered by state governments, which tend to provide richer retirement benefits than those typically offered in the private sector. This paper adds to the literature by examining the effects of automatic enrollment on the state of South Dakota’s supplemental retirement saving plan (SRP), which is a 457(b) plan.

Key Insights

• Career public employees covered by a pension and Social Security often receive at retirement a life annuity equal to 70%-80% of their final salary, so participation in supplemental retirement plans is generally low.
• Before automatic enrollment, less than 3% of newly hired South Dakota government workers contributed to the SRP in their first year of employment.
• After the state introduced automatic enrollment, over 90% of newly hired employees participated in the plan.
• Automatic enrollment tends to equalize plan participation rates across age, gender and income level.

Methodology

The authors were granted access to administrative records of all South Dakota public employees hired between 2005 and 2016. Using these data, they determined and compared SRP enrollment rates for workers hired before and after automatic enrollment was introduced in 2010.