The Efficiency of Sponsor and Participant Portfolio Choices in 401(k) Plans

Ning Tang, Olivia Mitchell, Gary R. Mottola and Stephen Utkus

No 15317, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Portfolio performance in 401(k) plans depends on both the investment menu made available by plan sponsors and participants portfolio decisions. We use a unique dataset of nearly 1 million participants in one thousand pension plans to identify key portfolio inefficiencies in 401(k) plans,attributing them either to the sponsor's menu design or to participants' own portfolio choices. We show that most sponsors offer efficient investment menus. However, many participants fail to construct efficient portfolios, leading to retirement wealth that could be one-fifth lower due to poor portfolio decisions. Because participants are the main source of inefficient DC portfolio choices, strategies targeting their portfolio choices, such as improved default investment strategies or advice programs, may help. Also, in sponsors' design of 401(k) menus, the number of options offered is less important than the range of funds provided.

JEL-codes: G11 G23 J14 J26 (search for similar items in EconPapers)
Date: 2009-09
Note: AG LS PE
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published as Ning Tang & Olivia S. Mitchell & Gary R. Mottola & Stephen P. Utkus, 2010. "The efficiency of sponsor and participant portfolio choices in 401(k) plans," Journal of Public Economics, vol 94(11-12), pages 1073-1085.

Downloads: (external link)
http://www.nber.org/papers/w15317.pdf (application/pdf)

Related works:
Journal Article: The efficiency of sponsor and participant portfolio choices in 401(k) plans (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:15317

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w15317

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().