The Efficiency of Pension Plan Investment Menus: Investment Choices in Defined Contribution Pension Plans

33 Pages Posted: 9 Jul 2008

See all articles by Ning Tang

Ning Tang

University of Pennsylvania - The Wharton School

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; University of Pennsylvania - The Wharton School, Pension Research Council; National Bureau of Economic Research (NBER)

Date Written: June 2008

Abstract

Few previous studies have explored whether defined contribution retirement saving plans offer sufficiently diversified investment menus, though it is likely that these menus significantly shape workers' accumulations of retirement wealth. This paper assesses the efficiency and performance of 401(k) investment options offered by a large group of US employers. We show that most plans are efficient compared to market benchmark indexes. Three performance measures underscore the fact that these plans tend to offer a sensible investment menu, when measured in terms of the menus' mean-variance efficiency, diversification, and participant utility. The key factor contributing to plan efficiency and performance has to do with the types of funds offered, rather than the total number of investment options provided.

Suggested Citation

Tang, Ning and Mitchell, Olivia S., The Efficiency of Pension Plan Investment Menus: Investment Choices in Defined Contribution Pension Plans (June 2008). Michigan Retirement Research Center Research Paper No. WP 2008-176, Available at SSRN: https://ssrn.com/abstract=1157360 or http://dx.doi.org/10.2139/ssrn.1157360

Ning Tang (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Olivia S. Mitchell

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

University of Pennsylvania - The Wharton School, Pension Research Council ( email )

3302 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6302
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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