NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Heterogeneity in Target-Date Funds: Optimal Risk-Taking or Risk Matching?

Pierluigi Balduzzi, Jonathan Reuter

NBER Working Paper No. 17886
Issued in March 2012, Revised in July 2015
NBER Program(s):   AG   IO

Following the Pension Protection Act of 2006, there was a sharp increase in the use of TDFs as default investment options in defined contribution retirement plans. We document large differences in realized TDF returns and risk profiles, even for funds with the same target retirement date. Using fund-level data, we find evidence that this heterogeneity reflects optimal risk-taking by fund families with low market share, especially those entering the market after 2006. Using plan-level data, we find little evidence that 401(k) plan sponsors match the risk profile of the TDFs in their plans to the risks of their companies.

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Document Object Identifier (DOI): 10.3386/w17886

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