Defined Contribution Pension Plans: Sticky or Discerning Money?

Sialm, Clemens; Starks, Laura T.; Zhang, Hanjiang

doi:10.2139/ssrn.2090096

Defined Contribution Pension Plans: Sticky or Discerning Money?

Journal of Finance, Forthcoming

55 Pages Posted: 24 Jun 2012 Last revised: 2 Feb 2015

See all articles by Clemens Sialm

Clemens Sialm

University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER); AQR Capital Management, LLC

Laura T. Starks

University of Texas at Austin - Department of Finance

Hanjiang Zhang

Washington State University - Carson College of Business

There are 2 versions of this paper

Date Written: August 20, 2014

Abstract

Participants in defined contribution (DC) retirement plans rarely adjust their portfolio allocations, suggesting that their investment choices and consequent money flows are sticky and not discerning. However, participants’ inertia could be offset by DC plan sponsors, who adjust the plan’s investment options. We examine these countervailing influences on flows into U.S. mutual funds. We find that flows into funds from DC assets are more volatile and exhibit more performance sensitivity than non-DC flows, primarily due to adjustments to the investment options by the plan sponsors. Thus, DC retirement money is less sticky and more discerning than non-DC money.

Keywords: Flow-Performance Sensititivity, Defined Contribution Pension Plans, Retirement Savings

JEL Classification: G20, G23, G11

Suggested Citation: Suggested Citation

Sialm, Clemens and Starks, Laura T. and Zhang, Hanjiang, Defined Contribution Pension Plans: Sticky or Discerning Money? (August 20, 2014). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2090096 or http://dx.doi.org/10.2139/ssrn.2090096