Simplifying choices in defined contribution retirement plan design : a case study
- The growth and popularity of defined contribution pensions, along with the government’s increasing attention to retirement plan costs and investment choices provided, make it important to understand how people select their retirement plan investments. This paper shows how employees in a large firm altered their fund allocations when the employer streamlined its pension fund menu and deleted nearly half of the offered funds. Using administrative data, we examine the changes in plan participant investment choices that resulted from the streamlining and how these changes might affect participants’ eventual retirement wellbeing. We show that streamlined participants’ new allocations exhibited significantly lower within-fund turnover rates and expense ratios, and we estimate this could lead to aggregate savings for these participants over a 20-year period of $20.2M, or in excess of $9,400 per participant. Moreover, after the reform, streamlined participants’ portfolios held significantly less equity and exhibited significantly lower risks by way of reduced exposures to most systematic risk factors, compared to their non-streamlined counterparts.
Author: | Donald Bruce Keim, Olivia S. MitchellORCiDGND |
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URN: | urn:nbn:de:hebis:30:3-438598 |
URL: | https://ssrn.com/abstract=3038784 |
Parent Title (English): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 573 |
Series (Serial Number): | CFS working paper series (573) |
Publisher: | Center for Financial Studies |
Place of publication: | Frankfurt, M. |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2017 |
Year of first Publication: | 2017 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2017/10/17 |
Tag: | Retirement saving; choice overload; default investment; pension; portfolio allocation |
Issue: | September 11, 2017 |
Page Number: | 40 |
Note: | ©2017 Keim and Mitchell. All rights reserved. |
HeBIS-PPN: | 41915986X |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |