Borrowing to Save? The Impact of Automatic Enrollment on Debt

Abstract

Does automatic enrollment into a retirement plan increase financial distress due to increased borrowing outside the plan? We study a natural experiment created when the U.S. Army began automatically enrolling newly hired civilian employees into the Thrift Savings Plan. Four years after hire, automatic enrollment increases cumulative contributions to the plan by 4.1% of annual salary, but we find little evidence of increased financial distress. Automatic enrollment causes no significant change in credit scores (point estimate = +0.001 standard deviations), debt balances excluding auto debt and first mortgages (point estimate = -0.6% of annual salary), or adverse credit outcomes such as late balances or balances in collection, with the possible exception of increased first mortgage balances in foreclosure.