The Impact of a Roth Option on Outcomes in Employer-Sponsored Savings Plans

John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian

NBER Retirement Research Center Paper No. NB 12-06
Issued in September 2012

We estimate the effect of introducing a Roth option to an employer-sponsored savings plan using administrative plan data from nine companies that added a Roth option between 2006 and 2008. We find mixed evidence on whether contribution rates fall after a Roth introduction, which means that the amount of after-tax retirement consumption being purchased by 401(k) contributions may increase. There is suggestive evidence that when choosing the composition of their own contributions, employees contributing above the employer match threshold ignore the fact that matching contributions are entirely before-tax. Conditional on plan participation, Roth participation is highest among young, low-income employees.

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