The CEO of a major company, disappointed by low retirement savings rates among his employees, is considering implementing one of two possible new savings initiatives.

Initiative A would provide employees the option to commit to a personal savings plan, where all future raises would be automatically directed to contributions to the employee’s 401(k) account. Initiative B would encourage employees to sign up to contribute 2% of their income to the 401(k) starting right now, and incentivize participation by introducing a new employer match component: if an employee contributes 2% of his or her income, the employer will contribute 2%.

Suppose the average employee at this company makes $50,000 per year, will receive a raise of 2% per year, and will earn returns of 8% each year in a 401(k). Over a 5-year period, would Initiative A or Initiative B produce better results for the employees who opt in? Considering the chapters’ discussion of individual behavior in the decision to save for retirement, which initiative do you think will result in the highest employee earnings? Which initiative would you recommend the CEO implement?