Obamanomics – Retirement Savings

In a recent Portfolio piece, Matt Cooper explains the rare policy where Obama and Clinton differ, retirement savings. The summary:

Clinton has proposed new 401(k)-style savings vehicles. But seeing that most people don’t sign up for the plans available to them, Obama wants to make 401(k) enrollment automatic unless one opts out.

After digging through some material, it’s clear that Obama’s minor tweak of changing opt in to opt out has significant repercussions.

Consider the case of organ donors. Take Germany and Austria, two bordering countries that share language and culture. Yet only 12% of Germans are potential donors, compared to 99.9% of Austrians. The difference? In Germany, it’s an opt in policy; someone must register to become a donor. In France, everyone is a potential donor unless they opt out.

A similar effect, although not quite of the same magnitude, occurs involving 401(k) plans. Auto enrollment leads to higher participation, as numerous studies have shown. A 2004 report by the Investment Company Institute found the participation rate jumped to 92% from 66%. Among 20-29 year olds, automatic enrollment more than doubles participation, according to Fidelity.

For more Obamanomics reading, check out this BusinessWeek article from a few weeks ago. A telling anecdote starts the story:

On Sunday, Feb. 10, after he found out he’d won that day’s Democratic Presidential caucuses in Maine, but before his appearance on CBS’s 60 Minutes, Senator Barack Obama (D-Ill.) sat down at the keyboard of his computer to write an e-mail. Not to a media consultant or a delegate counter, but to banker Robert Wolf, CEO of UBS Americas. The two men exchanged notes about the Senate-passed economic stimulus package and that weekend’s G-7 economic summit, Wolf says.


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