The Relative Effects of Economic and Non-Economic Factors on Taxpayers' Preferences between Front-Loaded and Back-Loaded Retirement Savings Plans

What is it about?

We examine taxpayers’ choices between front-loaded and back-loaded defined contribution retirement plans. In three experiments, we find mixed evidence regarding whether individuals appropriately weight expected tax rate changes, the primary driver of between-plan differences in after-tax returns, in their plan choices. In contrast, we find consistent evidence that factors unrelated to relative returns influence plan choice. Finally, we find that taxpayers largely prefer back-loaded retirement plans, even in situations where front-loaded plans economically dominate. The results have implications for policymakers and others considering how best to encourage retirement savings and interpret taxpayers’ actual saving decisions.

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