Delegation, Trust and Defaulting in Retirement Savings: Perspectives from Plan Executives and Members

We combine survey data from retirement plan members with information from interviews with plan executives to get both perspectives on who accepts the default plan and default investment option and why. We use a natural experiment in default construction where a new regulatory framework required providers to have stipulated default settings in place by early 2014. We find that not all retirement savings plan members who default at the plan choice stage default at the investment choice stage, and vice versa. Only around one third of the sample say they defaulted twice. While some plan executives describe defaulting members as uninterested in their retirement savings, our results highlight that subjective lack of skill combined with trust in the managing agents are the prime motivations for defaulting, rather than low interest. Plan executives set a high risk exposure in default investment strategies to ensure high wealth growth, but defaulting respondents show a lower appetite for risk than active choosers. The heterogeneity and low skill of members make a case for smart defaults.