Defined Contribution Pension Plans: Sticky or Discerning Money?

Abstract:     
A much-studied empirical result about defined contribution (DC) pension plans is that their participants rarely adjust their portfolio allocations, which suggests that their investment choices and consequent flows are sticky. Yet DC plan sponsors monitor the performance of plan options and actively adjust investment options available to participants. We empirically examine these countervailing influences on fund flows and find that flows of DC assets into mutual funds are more volatile and react more sensitively to performance than are non-DC asset flows. Overall fund flows in DC plans are less sticky and more discerning than fund flows into non-DC plans.

Number of Pages in PDF File: 58

Keywords: Flow-Performance Sensititivity, Retirement Savings Accounts, Monitoring

JEL Classification: G20, G23, G11

working papers series