Defaulting In and Cashing Out? The Impact of Retirement Plan Design on the Savings Accumulation of Separating Employees

This document is about how the shift from defined benefit to defined contribution retirement plans has given employees more freedom and responsibility, including the ability to withdraw retirement savings at job separation. The authors use administrative data on over 500,000 newly hired employees to explore how job separation and plan design features, especially automatic enrollment, impact retirement savings accumulation and distribution behaviors. They find that job separation is a significant source of "leakages" from retirement accounts, with many separated employees cashing out their savings, particularly those with small balances and those in automatic enrollment plans.