Is Auto-Enrolment Good for Financial Planning and Wellness of Civilian Employees of the US Army?

thrift saving plan

It is a general belief that auto-enrolment is a smart idea as it allows people to save more towards the retirement benefits and boosts their financial planning and wellness. But does the boost to financial planning and wellness actually occur? A study sought answers to these questions by analyzing the data of civilian employees of the US Army who have contributed to DC TSP or thrifts savings plan.  The results of the study are not as definitive as one would have expected.

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Auto Enrolment Expected To Boost Financial Planning and Wellness

Auto-enrolment to defined contributions plans began due to the Pension Protection Act which nudged the employees into DC plans. This step was taken to ensure that there was a boost in financial planning and wellness of the participants of the DC plans.

The Debt Danger

Though it is evident that auto-enrolment was initiated to ensure people benefit from better financial planning and wellness but an unpublished research paper has recently surfaced which states that it may be responsible for driving people deeper into debt. The study showed that an increase in debt payments is offsetting about 73 percent of the gains of low-income participants.

Analysis of Data

The researchers have analyzed savings data of the civilian employees of the US Army who had contributed to federal defined contribution thrift savings plan. Auto-enrolment on the set plan was associated with an increase in the wealth, but new consumer debt counterbalanced more than a third of the average gain.

The authors of the report compared more than 32,000 civilian U.S. Army employees who were hired in the year before the implementation of auto-enrollment change with nearly 27,000 employees employed in the year after. The authors also conducted a study on 2,345 employees who were hired in the month before the implementation and compared it to the 3,414 employees who were hired in the month after the change. It got similar results in both comparisons.

The Results

During a four-year period after the employees were hired, those who were auto-enrolled had an increase in the overall wealth, which increased by 5.2 percent on an average.  Wealth also rose by 13.9 percent at the 25 percentile of the income and 21.5 at the 10th percentile of income, says the study. Main reasons for the increase were employer and employee contributions. The report also mentions that auto-enrollment had no effect on 75th and 90th percentiles.

Lowering the Wealth Increase

A big blow to the financial planning and wellness benefits of auto-enrolment was that automatic enrollment increased net wealth during the same period by an average of just 3.3 percent. It demonstrated a 37 percent crowding effect. It was just 8.6 at 25th percentile which indicates 38 percent crowd out. It was also 5.8 percent at 10th percentile which shows 73 percent crowd out. There was no effect on the net wealth at 90th or 75th percentiles.

The Authors

The authors of the study were John Beshears, David Laibson and Brigitte Madrian of Harvard, William Skimmyhorn of the U.S. Military Academy and James Choi of Yale. Many authors have been studying the behavioral efforts to lift the U.S. savings rates for more than a decade.


After having a look at the report regarding auto-enrolment and its effects on financial planning and wellness, it can be stated that the increase in wealth is not as high as it was assumed to be initially as debt is playing a key role here. Though auto-enrolment has boosted the retirement benefits savings of people because they are saving up more in DC plans of TSP or thrift savings plan, the boost is not as much as many people expect it to be.

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