Employers control two primary levers that can motivate retirement savings among defined contribution plan participants—default savings rates and match rates. Setting a higher default savings rate can increase plan contributions among passive savers who accept the default. A higher match rate incentivizes active savers to increase contributions. This study uses a large sample of defined contribution participants to estimate the interaction between employer match and default rates on savings outcomes among new participants. Selecting a higher default rate has the largest impact on employee savings rates. Plans with low default savings rates that match a high percentage of employee earnings induce higher-income participants to actively move away from the low default savings rate, resulting in a wider savings gap between higher- and lower-income employees. When employees are defaulted in at a higher rate, fewer move away from the default savings rate and the default investment choice (e.g., a target-date fund). A higher default savings rate results in higher and more equal savings rates among employees, and higher acceptance of professionally managed defaults investments.
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