Report Analyzes Peer Information on Retirement Savings Behavior

Researchers from Harvard, Stanford, Yale, and the University of Pennsylvania found some evidence that the peer information intervention worked as expected among non-unionized non-participants. Receiving peer information increased this group’s likelihood of subsequently enrolling in the plan by 1.9 percentage points, from 0.7% to 2.7%, although this difference is not statistically significant, the report said. Among those who received peer information, a one percentage point increase in the reported fraction of coworkers already enrolled in the plan increased the enrollment rate by 1.1 percentage points and the average before-tax contribution rate change by 0.06% of income, effects that are significant at the 10% level.  

However, receiving peer information significantly reduced the likelihood of unionized non-participants subsequently enrolling in the plan by 3.6 percentage points, from 9.9% to 6.3%. The report noted a previous study that argued social norms marketing can backfire if individuals learn the promoted behavior is less common than they previously believed. However, the researchers said this mechanism is unlikely to be driving the study’s union employees’ response because enrollment was also decreasing in the magnitude of the peer information number communicated to an employee. A one percentage point increase in the reported fraction of coworkers already enrolled in the plan significantly reduced the enrollment rate by 1.8 percentage points and the average before-tax contribution rate change by 0.11% of income.  

The researchers noted all non-union employees faced a 6% employer match threshold (the minimum percent of pay they must contribute to earn their maximum possible employer matching contribution to the plan). In contrast, union employees faced several different matching formulas, and the match threshold for 77% of the union employees included in the mailing was different from 6%. Due to technological constraints in the processing of Quick Enrollment (QE) and Easy Escalation (EE) forms, everyone who returned a QE or EE reply form would have their contribution rate raised to 6%. The correspondence between this 6% contribution rate and the non-union employees’ match threshold may have made the mailings more compelling for non-union employees; for union employees with a different match threshold, the 6% contribution rate could have been less focal. 

The study did not find statistically significant effects among unionized participants who received EE letters. The researchers said these null effects may be due to the fact that, compared to non-participants, union employees who have actively chosen a positive contribution rate have stronger convictions about their optimal contribution rate and are thus less likely to be swayed by peer information.   

On the other hand, the study did find a positive effect (significant at the 10% level) of the peer information number’s magnitude on non-union participants’ before-tax contribution rate changes; a one percentage point increase in the reported fraction of participants contributing at least 6% of their pay to the plan increases non-union participants’ before-tax contribution rate changes by 0.07% of income.  

The researchers conducted a field experiment in partnership with a large manufacturing firm and its retirement savings plan administrator. Employees who had never participated in the firm’s 401(k) plan were mailed Quick Enrollment (QE) letters, which allowed them to start contributing 6% of their pay to the plan at a pre-selected asset allocation by returning a simple reply form. Employees who had previously enrolled but had a low contribution rate received Easy Escalation (EE) letters, which included a nearly identical reply form that could be returned to increase their contribution rate to 6% of pay. The researchers noted that previous work has shown that these simplified enrollment and contribution escalation mechanisms significantly increase savings plan contributions.  

The QE and EE recipients were randomly assigned to one of three groups. The mailing for the first group included information about the savings behavior of coworkers in their five-year age bracket (e.g., all employees at the firm between the ages of 25 and 29). The second group received similar information about coworkers in their 10-year age bracket (e.g., all employees at the firm between the ages of 20 and 29). The remaining recipients, whose mailing included no peer information, served as a control group.   

The two peer information QE mailings stated the fraction of employees in the relevant age bracket who were already enrolled in the savings plan. The two peer information EE mailings stated the fraction of savings plan participants in the relevant age bracket contributing at least 6% of their pay on a before-tax basis to the plan. The peer information values ranged from 72% to 93%.  

Employees in the study fall into four subpopulations distinguished along two dimensions: (1) unionized non-participants, (2) non-unionized non-participants, (3) unionized plan participants with low contribution rates, and (4) non-unionized plan participants with low contribution rates. The researchers drew the distinction between non-participants and low savers because the QE and EE mailings make different requests of recipients: initial enrollment in the case of QE, and contribution rate increases in the case of EE.   

They analyzed union employees separately from non-union employees because the latter were automatically enrolled in the retirement savings plan at a 6% contribution rate unless they opted out, while union employees were not subject to automatic enrollment. Non-union employees who remained at their 6% contribution rate default did not receive QE or EE letters, whereas union employees who remained at their non-participation default received QE letters, creating differential selection into the target sample by union status.