PARC Working Papers
Title
The Dynamics of Lifecycle Investing in 401(k) Plans
Document Type
Working Paper
Date of this Version
August 2008
Abstract
The introduction of lifecycle funds into 401(k) plans offers a rich environment in which to assess workers’ portfolio allocation decisions. Consistent with behavioral models, employer design decisions strongly influence lifecycle adoption behavior while fundamentally altering portfolio characteristics, both in the cross-section and longitudinally. Yet there are also elements of rational choice by new employees, as well as choice constrained by information costs among workers with low literacy characteristics. We conclude that recent legislation encouraging riskier 401(k) portfolios will modify investment patterns, with the rate of change varying according to whether behavioral or rational elements dominate in a given setting.
Keywords
lifecycle funds, 401(k) plans, portfolio allocation decisions, behvioral models
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Date Posted: 20 August 2008
Comments
PARC Working Paper Series, No. 06, 2008