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

  • 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.

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Author:Olivia S. MitchellORCiDGND, Stephen P. Utkus
Parent Title (English):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 662
Series (Serial Number):CFS working paper series (662)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Year of Completion:2021
Year of first Publication:2021
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2021/11/22
Tag:automatic enrollment; default effect; endorsement effect; pension; portfolio allocation
Issue:May 2021
Page Number:44
This research is part of the NBER programs on Aging and Labor Studies and the Household Finance Working Group, and it was undertaken pursuant to a grant from the US Social Security Administration (SSA) to the Michigan Retirement Research Center (MRRC). This research support is gratefully acknowledged along with that of the Pension Research Council and Boettner Center at The Wharton School of the University of Pennsylvania, and Vanguard.
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht