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 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.”

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Copyright/Permission Statement

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


The author thanks Olivia S. Mitchell for suggestions and support. She also thanks Takeshi Yamaguchi, Raimond Maurer and his students at the University of Frankfurt, Finance Department, Theo Nijman, Susan Thorp and Sojung Park for helpful input. She is grateful to Vanguard for providing recordkeeping data under restricted assess conditions. This research 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 HD-044964, all at the University of Pennsylvania. 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: 09 August 2019