NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Simplifying Choices in Defined Contribution Retirement Plan Design

Donald B. Keim, Olivia S. Mitchell

NBER Working Paper No. 21854
Issued in January 2016
NBER Program(s):Aging

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 understand how people select their retirement plan investments. This paper shows how employees in a large firm altered their fund allocations when the employer streamlined its pension fund menu and deleted nearly half of the offered funds. Using administrative data, we examine the changes in plan participant investment choices that resulted from the streamlining and how these changes might affect participants’ eventual retirement wellbeing. We show that streamlined participants’ new allocations exhibited significantly lower within-fund turnover rates and expense ratios, and we estimate this could lead to 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.

download in pdf format
   (230 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21854

Users who downloaded this paper also downloaded* these:
Carlson, Kim, Lusardi, and Camerer w21085 Bankruptcy Rates among NFL Players with Short-Lived Income Spikes
Acemoglu and Restrepo w23285 Robots and Jobs: Evidence from US Labor Markets
Rees, Sabia, Argys, Latshaw, and Dave w23171 With a Little Help from My Friends: The Effects of Naloxone Access and Good Samaritan Laws on Opioid-Related Deaths
Murphy and Topel w21841 Human Capital Investment, Inequality and Economic Growth
Bodie, Marcus, and Merton Defined Benefit versus Defined Contribution Pension Plans: What are the Real Trade-offs?
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us