MDRC and New America Foundation Launch AutoSave Pilot
In recent decades, American families have shown a steady decline in their ability to weather a financial emergency. For instance, in the absence of regular income, one-fifth of American households do not have enough savings or other assets to cover even their basic needs for three months. Although the personal savings rate has increased recently, it is not clear whether this apparent return to thrift will endure beyond the present economic downturn.
Research shows that consumers, particularly lower-wage workers, understand the importance of saving for emergency expenses. However, many lack access to savings plans or structures to enable them to begin saving. Others may worry about high banking fees or the safety of savings deposits. Or they simply fail to overcome the inertia that keeps them from entering a bank lobby and choosing from an array of savings products.
With support from the Rockefeller Foundation and the Charles Stewart Mott Foundation, the New America Foundation and MDRC have recently launched the AutoSave Pilot, a collaboration with employers to create savings mechanisms for low-wage workers that automatically divert, through payroll deduction, a small amount of an employee’s post-tax wages into a savings account. AutoSave streamlines account opening, minimizing the need for consumer decision-making or paperwork. Once initiated, savings deposits are made automatically by the employer each pay period, until the employee decides to stop or separates from the employer. The pilot is also exploring (and will possibly test) the feasibility of implementing a design that goes one step further in making a default choice — to automatically enroll employees in the savings plan unless they opt out.
Unlike most existing workplace saving programs, which focus on building retirement assets, AutoSave savings are intended to be fully liquid and available both to cover short-term needs and, potentially, to increase attachment to mainstream financial services or serve as building blocks to longer-term asset accumulation.
The 2009 pilot of AutoSave is being operated in collaboration with the Asset Building Program of the New America Foundation, which first formulated the AutoSave concept. Five employers are participating: a Southern California distribution warehouse for a national drugstore chain; a small nonprofit provider of vocational training and computer refurbishing; a for-profit school meal catering enterprise, recently expanded to four cities nationwide; and selected departments of two large municipal employers, located on the east and west coasts. Initially, the pilot will offer AutoSave to between 70 and 2,100 employees in each of these workplaces. Several more sites may be added to the pilot in late 2009.
Based on the initial pilot experience, the project may be expanded to a larger-scale, experimental study of the impact of participation in AutoSave. The AutoSave pilot may also provide lessons for President Obama’s newly proposed plan, called Automatic IRA, to increase the use of workplace-based, automatic enrollment of workers into individual retirement accounts. Although it targets retirement saving rather than short-term saving, Automatic IRA has key elements in common with AutoSave.
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