"Nudging" In Perspective

As a supporter of nudging 401(k) participants with automatic enrollment I believe that it is important to recognize that nudging only works when the nudge is in the person's best interest and the person being nudged trusts the nudger and agrees with the nudge's direction. For example, nudging does not work in the one-half of defined benefit plans that offer a lump sum payment where over 90 percent of participants endure the cumbersome spousal waiver procedures to avoid the otherwise required annuity distribution they would receive by doing nothing.

Nudgers must go to extraordinary measures to be sure they are right, must maintain participants’ trust and accompany the nudge with education explaining why the nudge is in the persons' best interest. The decision to nudge should be based on careful consideration and a realization that nudging is not a “set it and forget it” strategy.