How Auto-Enrollment Could Help Trump Accounts Work For Everyone

The recently passed One Big Beautiful Bill Act included a new savings vehicle—Trump Accounts—which raises lots of intriguing questions as a recent blog post by the Aspen Institute Financial Security Program discussed. One issue is whether the Treasury will require eligible babies to be automatically enrolled into the accounts. Under automatic enrollment, every eligible baby in the pilot program would be enrolled in the program and would receive an account along with the initial funding of $1,000, but the parents could opt out of the program. Why would automatic enrollment be an important issue for these accounts? What does the current usage of automatic enrollment tell us, if anything, about the possible uptake of Trump accounts?

In the retirement plan world, automatic enrollment has been in use for over 20 years, but it took off with the legislative ‘blessing’ of the tool in the Pension Protection Act of 2006. According to Vanguard’s analysis of its own client plan data, 10 percent of retirement savings plans used automatic enrollment in 2006 but by 2024 the percentage of savings plans with automatic enrollment rose to 61 percent. Larger employers sponsoring defined contribution plans were the first to widely employ automatic enrollment, and over time mid-sized and small employers adopted it in their plans.

Automatic enrollment significantly increases participation in DC plans. According to Vanguard, 64 percent of employees participate in a retirement savings plan when they voluntarily enroll or opt in, but 94 percent of employees participate when they are automatically enrolled.

Participation is very high when plans automatically enroll low- to moderate-income workers and young people. For example, for those making between $30,000 and $49,999 annually, participation goes from 53 percent for those opting in to 91 percent for those automatically enrolled. Similarly, for those under the age of 25, voluntary enrollment is associated with a participation rate of 25 percent compared to 90 percent under automatic enrollment.

Finally, savings appear to be greater over time for automatically enrolled participants versus those who opt into a retirement plan. According to Vanguard, “active participants in plans with automatic enrollment, with 10 or more years of tenure, had median account balances that were about 60 percent higher than participants with similar tenure in voluntary enrollment plans.”

Indeed, automatic enrollment has become not just the norm, but an expectation. A study by Principal Financial found that 59 percent of nonparticipating employees thought they were saving for retirement through their workplace plan, and of those mistaken nonparticipants, half believed they had been auto enrolled. This highlights how critical defaults have become—and how easily workers can fall through the cracks without them.

One of the major innovations in the field of retirement security has been the use of automatic enrollment in state-facilitated automated savings programs, also known as auto-IRA or Secure Choice programs. These programs target workers who do not have a retirement plan at their workplace, and these workers tend to have low to moderate- incomes. Specifically, 72 percent of workers making less than $31,000 a year do not have access to an employer-sponsored retirement plan. Using the Vanguard data as a guide, participation rates in private sector plans would be roughly 22 percent under an opt-in format, but state programs using automatic enrollment are experiencing participation rates of 62 percent to 72 percent, depending on the state.

Automatic enrollment has been used successfully in other contexts. For example, the City of Philadelphia automatically enrolled eligible residents in its discounted transit fare program for low-income residents. The City used existing eligibility data to enroll residents and directly connect them to their transit benefit, reducing the number of steps that an eligible resident would have to take if they wanted to sign up for discounted fares.

As a result, the Urban Institute estimates that the participation in the discounted fare program is three times higher in Philadelphia than in similar programs in other cities. Moreover, “stories from Philadelphians that suggest the city’s auto-enrollment approach is allowing participants to sidestep some of the barriers commonly associated with benefit programs and may be contributing to increased trust in government.”

Going back to Trump Accounts, some commentators have suggested that the accounts would largely appeal to upper income households looking for additional tax-deferred savings. And as with saving for retirement on one’s own, many eligible households might not even be aware of the accounts or not make the effort to sign up. Or, as experience with other savings programs shows, some workers even assume they are enrolled automatically when they are not. But, if the experience with retirement plans is any guide, automatic enrollment would likely enable low- to moderate-income households to have the largest gain in accounts. However, unlike in retirement plans, there would be no default contributions to the Trump Accounts—other than the seed funding—so moving beyond providing access and encouraging savings on an ongoing basis would remain a key priority.