TY  - JOUR
AU  - Tang,Ning
AU  - Mitchell,Olivia S.
AU  - Mottola,Gary R.
AU  - Utkus,Stephen
TI  - The Efficiency of Sponsor and Participant Portfolio Choices in 401(k) Plans
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15317
PY  - 2009
Y2  - September 2009
UR  - http://www.nber.org/papers/w15317
L1  - http://www.nber.org/papers/w15317.pdf
N1  - Author contact info:
Ning Tang
University of Pennsylvania
Wharton School
3620 Locust Walk
3000 SH-DH
Philadelphia, PA 19104
E-Mail: tangn@wharton.upenn.edu

Olivia S. Mitchell
University of Pennsylvania
Wharton School
3620 Locust Walk, St 3000 SH-DH
Philadelphia, PA 19104-6302
Tel: 215-898-0424
Fax: 215/898-0310
E-Mail: mitchelo@wharton.upenn.edu

Gary R. Mottola
Vanguard Center for Retirement Research
100 Vanguard Boulevard, M38
Malvern, PA  19355
E-Mail: gmottola@vanguard.com

Stephen Utkus
Vanguard Center for Retirement Research
100 Vanguard Boulevard, M38
Malvern, PA  19355
E-Mail: steve_utkus@vanguard.com
AB  - Portfolio performance in 401(k) plans depends on both the investment menu made available by plan sponsors and participants portfolio decisions. We use a unique dataset of nearly 1 million participants in one thousand pension plans to identify key portfolio inefficiencies in 401(k) plans,attributing them either to the sponsor’s menu design or to participants’ own portfolio choices. We show that most sponsors offer efficient investment menus. However, many participants fail to construct efficient portfolios, leading to retirement wealth that could be one-fifth lower due to poor portfolio decisions. Because participants are the main source of inefficient DC portfolio choices, strategies targeting their portfolio choices, such as improved default investment strategies or advice programs, may help. Also, in sponsors’ design of 401(k) menus, the number of options offered is less important than the range of funds provided.
ER  -