In 1998, the IRS passed a new law making it legal for employers to enroll new employees into the company's 401k plan automatically. Employees were not opted-in by default. This change drastically increased 401k participation (obviously).
This idea, first proposed by Richard Thaler, made savings incredibly easy. Yes—the same Thaler that won a Nobel Prize in economics. And published the best-seller Nudge—the book which introduced the world to behavioral psychology.
An employee no longer needed to think about it.
How much should I contribute? → 6% by default.
What funds should I choose? → Pre-selected mutual funds.
Now, we made have taken this too far. Even though I purchased a coffee from your shop doesn't mean I wanted to subscribe to the shop's email newsletter.
Jan 2023