Tuesday, November 28, 2017
Lily Batchelder (NYU) presents Improving Retirement Savings Choices Through Smart Defaults at Boston College today as part of its Tax Policy Workshop Series hosted by Jim Repetti, Diane Ring, and Shu Yi Oei:
Many Americans are not financially prepared for retirement. One of the most powerful levers for influencing their retirement savings choices is defaults. Yet despite the overwhelming evidence of defaults’ power and new research on optimal retirement savings strategies, there have been relatively few reforms to leverage their influence over the past decade.
Making defaults “smarter”—including by taking the novel step of adjusting defaults based on socio-economic characteristics of savers—is a simple way that policymakers could dramatically improve retirement preparedness at little cost to taxpayers. This is true both in the employer plan context and as part of any reforms, such as new state-based auto-IRAs, that expand easy access to tax-preferred retirement savings vehicles outside of employer plans.
Nevertheless, making defaults smarter will require addressing a number of normative, legal, and practical challenges that have received relatively little attention to date. This paper aims to fill that gap. It lays out the major design choices and dilemmas that would arise in implementing smarter defaults for retirement savings, tax, investment, and distribution choices. In the course of identifying these challenges, it offers options for how to address them so that employers, states, or federal policymakers can move forward with such reforms.