The paper tells that the Save More Tomorrow plan also is known as the SMarT plan allows low-saving employees to literally save more. The plan uses the theoretical framework of ‘ choice architecture’ describing their low-saving behavior as a “ mistake” and subsequently creating an environment that fosters better decision making and choices that improve their saving rates. The approach of decision making based on choice architecture encourages employees to save more and thus increase their retirement funds by directing their choices through the SMarT plan. The plan follows libertarian paternalism in that the employees can opt out from the plan at any time thereby allowing them the freedom to choose for themselves.
The Save More Tomorrow plan allows employees to commit a specific amount of their salary increases now and the amount will be added towards their retirement savings. The plan has been implemented at many workplaces and about 60 percent of the American companies offering defined-contribution plans now use the Save More Tomorrow model. Since the adoption of the SMarT plan by employers, the results have shown the promising scope of the plan.
In the various companies, it has been adopted, the saving rates have shot up markedly. The Save More Tomorrow plan greatly derives from behavioral economics. A common principle of economics is that people are rational beings. That said they are able to do a cost-benefit analysis and respond to incentives that maximize their self-interest. Hence, people are driven by their self-interest and tend to respond to marginal changes when given incentives. The Save More Tomorrow uses behavioral economics to direct people to make choices that work in their interest and maximize their benefit.
This is the essence of the choice architecture which works to optimize the benefit by directing an individual to make better choices. For the employees, it is in their interest to save for the future and the Save More Tomorrow allows this by providing an incentive to save.
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