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 enrollmentincreases cumulative contributions to the plan by 4.1% of annual salary, but we find little evidence ofincreased financial distress. Automatic enrollment causes no significant change in credit scores, debt balances excluding auto debt and first mortgages, or adverse credit outcomes, with the possible exception of increasedfirst‐mortgage balances in foreclosure.