Target-Date Funds in 401(K) Retirement Plans
36 Pages Posted: 22 May 2012
Date Written: May 1, 2012
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 works 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 partricipants. Among active decsion-makers, these funds act as a form of implicit employer-provided lifecycle investment advice. More broadly, our findings hightlight malleable preferences among retirement investors and ad emand for default-based guidance or simplified advice for households facing complex choices.
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