Target date funds and portfolio choice in 401(k) plans

Olivia Mitchell and Stephen P. Utkus

No 662, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: Target date funds in corporate retirement plans grew from $5B in 2000 to $734B in 2018, partly because federal regulation sanctioned these as default investments in automatic enrollment plans. We show that adopters delegated pension investment decisions to fund managers selected by plan sponsors. Including these funds in retirement saving menus raised equity shares, boosted bond exposures, curtailed cash/company stock holdings, and reduced idiosyncratic risk. The adoption of low-cost target date funds may enhance retirement wealth by as much as 50 percent over a 30-year horizon.

Keywords: automatic enrollment; pension; portfolio allocation; endorsement effect; default effect; retirement saving (search for similar items in EconPapers)
JEL-codes: D12 D14 D91 G41 G51 J32 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-age and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Target-date funds and portfolio choice in 401(k) plans (2022)
Working Paper: Target Date Funds and Portfolio Choice in 401(k) Plans (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:662

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