Heterogeneity in Target-Date Funds: Optimal Risk-Taking or Risk Matching?

75 Pages Posted: 15 Mar 2012 Last revised: 6 Jul 2015

See all articles by Pierluigi Balduzzi

Pierluigi Balduzzi

Boston College - Carroll School of Management

Jonathan Reuter

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 30, 2015

Abstract

Following the Pension Protection Act of 2006, there was a sharp increase in the use of TDFs as default investment options in defined contribution retirement plans. We document large differences in realized TDF returns and risk profiles, even for funds with the same target retirement date. Using fund-level data, we find evidence that this heterogeneity reflects optimal risk-taking by fund families with low market share, especially those entering the market after 2006. Using plan-level data, we find little evidence that 401(k) plan sponsors match the risk profile of the TDFs in their plans to the risks of their companies.

Keywords: Default investments, retirement savings, asset allocation, flow-performance, regulation

JEL Classification: G11, G18, G23, G28

Suggested Citation

Balduzzi, Pierluigi and Reuter, Jonathan, Heterogeneity in Target-Date Funds: Optimal Risk-Taking or Risk Matching? (June 30, 2015). Available at SSRN: https://ssrn.com/abstract=2022672 or http://dx.doi.org/10.2139/ssrn.2022672

Pierluigi Balduzzi

Boston College - Carroll School of Management ( email )

Department of Finance
140 Commonwealth Avenue - Fulton Hall 438
Chestnut Hill, MA 02467
United States
617-552-3976 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www.bc.edu/bc_org/avp/csom/faculty/

Jonathan Reuter (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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