NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Ning Tang

University of Pennsylvania
Wharton School
3620 Locust Walk
3000 SH-DH
Philadelphia, PA 19104

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NBER Working Papers and Publications

September 2009The Efficiency of Sponsor and Participant Portfolio Choices in 401(k) Plans
with Olivia S. Mitchell, Gary R. Mottola, Stephen Utkus: w15317
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 h...
 
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