Wharton Pension Research Council Working Papers

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Working Paper

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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.

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


The authors acknowledge the research support of 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 the National Institutes of Health/National Institute of Child Health and Development Population Research Infrastructure Program R24 HD-044964; support was also provided by a grant from the US Social Security Administration (SSA) to the Michigan Retirement Research Center (MRRC). The authors acknowledge Vanguard’s helpful provision of recordkeeping data under restricted access conditions, and they benefited from suggestions by Brigitte Madrian, Alexander Muermann, and Stephen Shore. This research is part of the NBER programs on Aging and Labor Economics. Opinions, errors, and conclusions are solely those of the authors and do not represent the views of the SSA, any agency of the Federal Government, Vanguard, the MRRC, or any other institution with which the authors may be affiliated. All findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council.

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Date Posted: 09 August 2019