Defined Contribution Pension Plans: Sticky or Discerning Money?
University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER)
Laura T. Starks
University of Texas at Austin - Department of Finance
Nanyang Technological University - Nanyang Business School
August 20, 2014
Journal of Finance, Forthcoming
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.
Number of Pages in PDF File: 55
Keywords: Flow-Performance Sensititivity, Defined Contribution Pension Plans, Retirement Savings
JEL Classification: G20, G23, G11
Date posted: June 24, 2012 ; Last revised: February 2, 2015