Work

Target Date Funds and Portfolio Choice in 401(k) Plans

Year: 2021

Type: article

Abstract: Target-date funds in corporate retirement plans grew from $5 billion in 2000 to $734 billion in 2018, partly because federal regulation sanctioned these as default investments in automatic enrollment plans. We show that adopters delegated pension investment decisions to fund managers selected by plan sponsors. Inclusion of these funds in retirement saving menus raised equity shares, boosted bond exposures, curtailed cash/company stock holdings, and reduced idiosyncratic risk. The adoption of low-cost target-date funds may enhance retirement wealth by as much as 50% over a 30-year horizon.

Source: Journal of Pensions Economics and Finance

DOI: 10.1017/s1474747221000263

Authors: Olivia S. Mitchell, Stephen P. Utkus

Institution: University of Pennsylvania

Language: English

Topic: Financial Literacy, Pension, Retirement Analysis

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,162

Funders: U.S. Social Security Administration, University of Pennsylvania, Australian Government