How do consumers respond when default options push the envelope?

How do consumers respond when default options push the envelope?


Research from The Voya Behavioral Finance Institute for Innovation, along with scientists from Harvard, UCLA and the University of Pennsylvania, shows that employers are missing out on an opportunity to substantially increase employee savings.1

Employers can increase the suggested rate from 3% to 10% without decreasing participation.1

Industry data tells us that 40% of employers with automatic enrollment set the default contribution rate to 3% of pay, while only 2.4% offer a default greater than 6%.2

While enrollment in the study was not set up as “automatic” with an “opt out” requirement, the display rate findings are applicable for an auto-enrollment plan environment.3 Many employers believe that raising the suggested contribution rate will discourage employees from participating in their workplace savings program. The new working paper “How Do Consumers Respond When Default Options Push the Envelope?”

Key Insights

  1. Employers can dramatically increase their suggested saving rate without worrying about major backfire effects.

    While setting the rate to 11% did slightly increase the percentage of employees opting not to participate, display rates between 7% and 10% did not. This means that employers can more than triple the most commonly suggested rate (3%) without decreasing participation.1

  2. All of the higher suggested rates improved average savings when compared to a control rate of 6%.

    However, the main lift in savings occurred when the suggested rate increased from 6% to 7%.1

  3. Displaying higher rates led to meaningful improvements in the financial security of plan members.

    The researchers calculated that, for an employee with an annual salary of $70,000, the incremental benefits could produce additional retirement savings of $57,000.4 This translates to more than 8% of additional retirement savings for that same employee over their working career.5


Voya’s experiment involved 10,000 employees who visited a workplace retirement plan enrollment website between November 2016 and July 2017. After entering basic personal information, employees were prompted to select a randomly assigned retirement savings contribution rate of 6% (the control group) up to 11%. Researchers waited 60 days after an individual’s website visit before collecting their contribution data.

Based on this data, employers may have an opportunity to “push the envelope” when it comes to higher suggested savings rates. Although more than 97% of employers with automatic enrollment set the default contribution rate at 6% or below2 this new research shows that millions of American workers will benefit from higher suggested rates. This is a small nudge that can make a very big difference.

1 How Do Consumers Respond When Default Options Push the Envelope? (SSRN #3050562), by John Beshears of Harvard University and NBER; Shlomo Benartzi of University of California, Los Angeles; Richard T. Mason of City, University of London and Voya Financial; and Katherine L. Milkman of University of Pennsylvania.

2 The Plan Sponsor Council of America (2016).

3 We tested the suggested rate in an opt-in environment. While suggested rates in an opt-in environment are a “soft” default, we predict that our results will also apply to “harder” defaults in auto-enrollment plans, where participants are automatically assigned the default rate unless they actively opt out.

4 Assumes 40 years of saving with a 6% percent rate of return.

5 Based on an average savings rate increase of .5% of pay from the study’s base rate of 6.11%.