Defined Contribution Pension Plans: Sticky or Discerning Money?
University of Texas at Austin - McCombs School of Business; Stanford University; National Bureau of Economic Research (NBER)
Laura T. Starks
University of Texas at Austin - Department of Finance
Nanyang Technological University - Nanyang Business School
January 15, 2014
Journal of Finance, Forthcoming
Participants in defined contribution (DC) retirement plans rarely adjust their portfolio allocations, suggesting that their investment choices and consequent money flows are sticky and also not discerning. Yet, the participants’ inertia could be offset by DC plan sponsors, who adjust the plan’s investment options. We examine these countervailing influences on flows into U.S. mutual funds. We find that flows into funds that derive from DC assets are more volatile and exhibit more performance sensitivity than non-DC flows, primarily due to the adjustments of the investment options by the plan sponsors. Thus, DC retirement money is less sticky and more discerning.
Number of Pages in PDF File: 57
Keywords: Flow-Performance Sensititivity, Defined Contribution Pension Plans, Retirement Savings
JEL Classification: G20, G23, G11Accepted Paper Series
Date posted: June 24, 2012 ; Last revised: February 12, 2014
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