PARC Working Paper Series

Document Type

Working Paper

Date of this Version



Tang, Ning. 2008. "The More the Better? Characteristics and Efficiency of 401(k) Investment Menus." PARC Working Paper Series, WPS 08-02.


Few previous studies have explored whether defined contribution retirement saving plans offer sufficiently diversified investment menus, though it is likely that these menus significantly shape workers’ accumulations of retirement wealth. This paper assesses the efficiency and performance of 401(k) investment options offered by a large group of US employers. We show that the majority of plans is efficient compared to market benchmark indexes. Three performance measures underscore the fact that these plans tend to offer a sensible investment menu, when measured in terms of the menus’ mean-variance efficiency, diversification, and participant utility. The key factor contributing to plan efficiency and performance is the particular set of funds offered, rather than the total number of investment options provided. We conclude that, in 401(k) arena, “more” is not necessarily “better.”


Defined contribution, Investment menus, Efficiency, Performance, Benchmark indexes, Mean-variance, Diversification



Date Posted: 05 August 2008