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Although extensive choice seems appealing, research shows that it may hinder motivation to buy and decrease subsequent satisfaction with purchased goods. This paper examines whether these findings generalize to employees who are making decisions about whether to invest in 401(k) retirement saving plans. Using data from nearly 800,000 employees, we tested the hypothesis that employee 401(k) participation rates fall as the number of fund options increase. Our results confirm that participation in 401(k) plans is higher in plans offering a handful of funds, as compared to plans offering ten or more options.
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©2003 Pension Research Council of the Wharton School of the University of Pennsylvania. All Rights Reserved
We acknowledge the contributions of Steve Utkus, who made available the data essential for conducting this analysis and who provided us constructive feedback throughout the process. We would also like to thank Gary Mottola for the considerable time and effort he dedicated to assisting us in refining and analyzing the data set.
Date Posted: 04 September 2019