Good News: “Nudge” is Working
One of the most successful public policy proposals in recent years was a joint project by the National Center for Policy Analysis and the Brookings Institution. It was based on ideas that later published in a Thaler/Sunstein book called Nudge, which I reviewed here. Basically, employers get a safe harbor against lawsuits if they automatically enroll their employees in 401(k) plans with diversified portfolios. (The employee remains free to opt out, however.)
In a recent presentation, Congressional Budget Office (CBO) Director Peter Orszag explained:
- In one study, 45 percent of newly hired workers participated in a 401(k) plan when doing so required opting in, but 86 percent did so when enrollment was automatic.
- For workers making less than $30,000, the difference in participation rates was even larger: 25 percent when workers had to opt in and more than triple that, 77 percent, when they were automatically enrolled.
This approach is becoming increasingly popular in the employer community:
- In 2003, only about 8 percent of 401(k) plans featured automatic enrollment, but by 2007, the number had risen to about 36 percent.
- For large retirement plans, the share is even higher. As of 2007, 51 percent of 401(k) plans with 5,000 or more eligible employees offered automatic enrollment.
- As of 2007, about 33 percent of the 401(k) plans that offered automatic enrollment also offered some form of automatic escalation in savings rates, up from about 9 percent only three years before.
Can this approach also work for health? Orszag says it already is – with some Medicare patients being automatically enrolled in drug plans that steer them toward generic rather than more expensive brand drugs.
Automatic enrollment is one of the best things ever to happen to 401(k) plans. Furthermore, since the inception of the new auto enrollment feature, a growing number of employers are providing more options, such as Roth 401(k)s, for their employees. So now many employees can choose between the Roth 401(k) or the regular tax-deferred 401(k). A recent study by Laurence Kotlikoff et al., found that the Roth 401(k) is favorable in protecting individuals against future tax increases. A sad note however: a growing percentage of people are borrowing against their 401(k)s. Even with the auto enrollment feature, excessive borrowing will leave many plan holders unprepared for retirement. To see how much it can cost you, see the NCPA’s 401(k) borrowing calculator.
I’ve been csenuofd by UND’s environmental program do we have one? I know there is this mysterious Earth System Sciences and Policy graduate program as well as the environmental geoscience major (and environmental engineering), but I haven’t heard of a straight Environmental Studies major. Maybe I’m oblivious?Regarding coal and oil money, Geology and Geological Engineering has a couple of very large grants to study oil in the Bakken Formation, however there are also some supporting CO(2) sequestration (along with EERC) and geothermal energy research. I’m not sure how much political pressure is involved at the level of School of Engineering and Mines (or even higher in the administration), but professors and graduate students typically end up following the money.