Can Simple Informational Nudges Increase Employee Participation in a 401(k) Plan?

TLDR

Many workers ignore employer 401(k) plans despite tax advantages and matching contributions. The experiment randomized new hires to receive an informational flyer about the 401(k) plan and the compounding value of contributions. The flyer increased participation among younger workers, demonstrating that simple informational nudges can overcome financial priorities and literacy gaps to boost 401(k) enrollment and improve retirement security.

Abstract

We report results from a field experiment in which a randomized subset of newly hired workers at a large financial institution received a flyer containing information about the employer's 401(k) plan and the value of contributions compounding over a career. Younger workers who received the flyer were significantly more likely to begin contributing to the plan relative to their peers in the control group. Many workers do not participate in their employers' supplemental retirement savings programs, even though these programs offer substantial tax advantages and immediate returns due to matching contributions. From a survey of new hires, we find that many workers choose not to contribute to the plan because they have other financial priorities. However, some nonparticipants lack the financial literacy to appreciate the benefit. These findings indicate that simple informational interventions can nudge workers to participate in retirement saving plans and enhance individual well‐being and retirement income security.