Wharton Pension Research Council Working Papers

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Working Paper

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In view of the growth and popularity of defined contribution pensions, along with the government’s growing attention to retirement plan costs and investment choices provided, it is important to evaluate how people select their plan investments. This paper tracks how employees in a large firm altered their fund allocations when the employer streamlined its pension fund menu, tiering options in an easier-to-understand format. Using administrative data, we examine what investment choices the plan participants elected prior to and after the streamlining, and how they altered their equity share, risk exposure, fees paid, and turnover patterns as a result of the change. We also discuss what difference the changes might make for participants’ eventual retirement wellbeing. Specifically, we show that streamlined participants’ new allocations exhibited significantly lower turnover rates and expense ratios; based on reasonable assumptions, this could lead to additional aggregate savings for these participants over a 20-year period of $20.2M, or in excess of $9,400 per participant. Moreover, after the reform, streamlined participants’ portfolios held significantly less equity and exhibited significantly lower risks by way of reduced exposures to most systematic risk factors, compared to their non-streamlined counterparts

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Copyright/Permission Statement

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. © 2015 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.


Research support for the analysis herein was provided by the TIAA-CREF Institute and by the Pension Research Council/Boettner Center at The Wharton School of the University of Pennsylvania. We are grateful for expert programming assistant from Louis Yang and Yong Yu, and for suggestions from Jonathan Reuter. Opinions and conclusions expressed herein are solely those of the authors and do not represent the opinions or policy of the TIAACREF Institute or any institution with which the authors are affiliated. This research is part of the NBER programs on Aging and Public Economics. ©2015 Keim and Mitchell. All rights reserved.



Date Posted: 12 March 2019