Target-Date Funds in 401(K) Retirement Plans

36 Pages Posted: 22 May 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

Multiple version iconThere are 3 versions of this paper

Date Written: May 1, 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 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.

Suggested Citation

Mitchell, Olivia S. and Utkus, Stephen P., Target-Date Funds in 401(K) Retirement Plans (May 1, 2012). The Wharton School Research Paper No. 26. Available at SSRN: https://ssrn.com/abstract=2064441

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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