2 golden eggs in nest (Photo:Shutterstock)

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There's been plenty of research on the effects of factors suchas employer matching and auto-enrollment on private-sector employees and 401(k)s, but when it comes to federalemployees, it's been a veritable information desert.

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So the Congressional Budget Office decided to check it out andsee whether the same study-based assumptions for private-sectorworkers hold true for federal workers, and surprise,surprise – they don't. In fact, according to the CBO study, "most of the estimates from theliterature substantially understate the effect of matching."

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The study used data spanning the period 2008–2014, and trackingemployee behavior on contributions to the Thrift Savings Plan,their balance in each asset, default contribution rates,eligibility for matching contributions and other information ontheir TSP activity.

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It compared employee behavior under two major changes in policyregarding federal employee retirement benefits:

  • The switch in 1984 from the Civil Service Retirement System,which provides a defined benefit pension but no employercontributions to TSP
  • The implementation of automatic enrollment with a defaultcontribution rate of 3 percent for workers hired after August2010

Workers hired in 1983—under the old system, which did not offera match—did not contribute at the same rate, with just 69.5 percentkicking in to their plans.

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However, those hired in 1984, who were covered by the TSP, notonly contributed at a considerably higher rate—91.7 percent—butalso had a higher contribution rate overall (9.2 percent, comparedwith 5.9 percent, as a percentage of salary) and had a highercontribution rate when considering only those in the earlier cohortwho did contribute to their plan under CSRS (10 percent, comparedwith 8.5 percent, as a percentage of salary).

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The workers under the new plan also had a much higher averageratio of retirement account balance to pay, with the TSP folkscoming in at 2.5 compared with the CSRS folks at just 0.8.

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Then there's the effect of auto-enrollment. Among those hiredunder the TSP before auto-enrollment went into effect, thepercentage of workers who contributed to the plan was 60, with anaverage contribution rate of 2.9 percent of their salary.

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The story was quite different for those who were brought in onceauto-enrollment was in effect, with the percentage of contributingworkers at 96.7 percent and their average contribution rate at 4.4percent.

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The study concluded the following under the employermatch:

  • Participation increases by 22 percentage points.
  • Conditional contribution rate increases by 1.9 percentagepoints.
  • Average contribution rate increases by 3.5 percentagepoints.
  • Balance-to-pay ratio is twice as large 28 years later.

In addition, the share of bonds in workers' portfolios increasesby 7 percentage points.

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Other study conclusions include the information that amongworkers hired under auto-enrollment, women, workers older than 30,black and Hispanic workers, less educated workers and those in thebottom tercile of the earnings distribution are more likely tostick with the default contribution rate and fund.

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But when compared with private-sector workers, federal workersare more likely to move away from the defaults, and faster, withthe effect of automatic enrollment "strongest among the groups thathave lower participation and contribution rates in itsabsence."

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The study also found that participation increased by 37percentage points at zero–4 months of tenure, and by 13 percentagepoints at 41–52 months of tenure. In addition, at 41–52 months oftenure, the average contribution rate rose by 0.5 percentage pointsand the balance-to-pay ratio rose by 2.3 percentage points, whilethe effect on portfolio allocations was negligible.

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Marlene Satter

Marlene Y. Satter has worked in and written about the financial industry for decades.