Wharton Pension Research Council Working Papers

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Working Paper

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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 most plans are 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 has to do with the types of funds offered, rather than the total number of investment options provided.

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© 2008 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.


The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA or any agency of the Federal Government. The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) to the Michigan Retirement Research Center, funded as part of the Retirement Research Consortium. This research also received support from the Pension Research Council at The Wharton School; the National Institutes of Health - National Institute on Aging, Grant number P30 AG12836; the Boettner Center for Pensions and Retirement Security at the University of Pennsylvania; and National Institutes of Health – National Institute of Child Health and Development Population Research Infrastructure Program R24 HD044964, all at the University of Pennsylvania. The authors thank Takeshi Yamaguchi for input and support; Raimond Maurer and his students at the University of Frankfurt, Finance Department, for helpful comments; and Steve Utkus, Gary Mottola, Theo Nijman, and Susan Thorp for very useful comments and suggestions. They are grateful to Vanguard for providing recordkeeping data under restricted assess conditions. All findings, interpretations, and conclusions of this paper represent the views of the author(s) and not those of the Wharton School or the Pension Research Council.

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Date Posted: 07 August 2019