Portfolio Delegation and 401(K) Plan Participant Responses to COVID-19

38 Pages Posted: 29 Jun 2020

See all articles by David Blanchett

David Blanchett

Morningstar Investment Management

Michael S. Finke

The American College

Jonathan Reuter

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2020

Abstract

We analyze the behavior of 401(k) plan participants during the first quarter of 2020, when COVID-19 generated historic volatility, large negative returns, and significant unemployment. Only 2.1% of participants invested in TDFs made any changes to their portfolios, with even lower rates of change among those defaulted into robo-advised managed accounts, suggesting that delegation can decrease the likelihood of portfolio mistakes by less sophisticated participants. While 16.6% of non-delegated participants made portfolio changes, these changes were more likely among more sophisticated participants and appear not to have reduced participants’ quarterly returns. Consistent with liquidity constraints, however, withdrawals spike following job loss.

Suggested Citation

Blanchett, David and Finke, Michael S. and Reuter, Jonathan, Portfolio Delegation and 401(K) Plan Participant Responses to COVID-19 (June 2020). NBER Working Paper No. w27438, Available at SSRN: https://ssrn.com/abstract=3637739

David Blanchett (Contact Author)

Morningstar Investment Management ( email )

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Michael S. Finke

The American College ( email )

Bryn Mawr, PA 19010
United States

Jonathan Reuter

Boston College - Department of Finance ( email )

Carroll School of Management
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Chestnut Hill, MA 02467-3808
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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