Target-Date Funds in 401(k) Plans

36 Pages Posted: 7 Mar 2012

See all articles by Olivia S. Mitchell

Olivia S. Mitchell

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

Stephen P. Utkus

Vanguard Center for Investor Research

Date Written: March 6, 2012

Abstract

Individual responsibility for portfolio construction is a central theme for defined contribution pensions, yet the rise of target-date funds is shifting investment decisions from workers back to employers. A complex choice architecture including automatic enrollment, reenrollment, and fund mapping, is increasing the number of participants defaulting into employer-selected target-date funds. At the same time, portfolios of non-defaulted participants undergo sizeable changes, with equity share ratios widening by over 40 percent points between younger/older participants. Among active decision-makers, these funds act as a form of implicit employer-provided lifecycle investment advice. More broadly, our findings highlight malleable preferences among retirement investors and a demand for default-based guidance or simplified advice for households facing complex choices.

JEL Classification: J26

Suggested Citation

Mitchell, Olivia S. and Utkus, Stephen P., Target-Date Funds in 401(k) Plans (March 6, 2012). Pension Research Council WP 2012-02. Available at SSRN: https://ssrn.com/abstract=2017125 or http://dx.doi.org/10.2139/ssrn.2017125

Olivia S. Mitchell (Contact Author)

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Stephen P. Utkus

Vanguard Center for Investor Research ( email )

100 Vanguard Boulevard, M38
Malvern, PA 19355
United States
610-669-6308 (Phone)

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