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How Should Retirement Plans Be Organized?

58 Pages Posted: 4 Oct 2016 Last revised: 8 Nov 2016

Sureyya Burcu Avci

University of Michigan, Stephen M. Ross School of Business

M. P. Narayanan

University of Michigan, Stephen M. Ross School of Business

H. Nejat Seyhun

University of Michigan, Stephen M. Ross School of Business

Date Written: October 1, 2016

Abstract

Americans have a tough time saving for their retirement. To make matters worse, the move from defined benefit (DB) to defined contribution plans (DC) over the years has required greater investor sophistication, discipline, and sound investment advice. Unfortunately, the current rules regarding investment advice for defined contribution plans do not address the two critical deficiencies of the current system, namely opacity and conflicts of interest. We propose that one-master standard be instituted along with strict transparency requirements to control the conflicts of interest and improve retirement savings advice. We also recommend that only passive, well-diversified index funds for stocks and bonds should qualify as retirement vehicles.

Keywords: Defined contribution plans, pension funds, investment advice, transparency, conflict of interest

JEL Classification: J26, J32

Suggested Citation

Avci, Sureyya Burcu and Narayanan, M. P. and Seyhun, H. Nejat, How Should Retirement Plans Be Organized? (October 1, 2016). New York University Journal of Law and Business, Vol. 13, No. 2, 2017, Forthcoming; Ross School of Business Paper No. 1332. Available at SSRN: https://ssrn.com/abstract=2847655 or http://dx.doi.org/10.2139/ssrn.2847655

Sureyya Burcu Avci (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-747-0219 (Phone)

M. P. Narayanan

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-5936 (Phone)
734-936-0274 (Fax)

H. Nejat Seyhun

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-5463 (Phone)

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