What Helped DC Participants Stay the Course in 2020?

Abstract

Defined contribution plans require households to make a number of complicated decisions about funding retirement, and it is not clear if they are up to the task. This research explores trading decisions of plan participants during 2020 in order to understand how the use of professionally managed portfolios and allocations to guaranteed income relate to participant trading activity. Participants who allocated their entire balances to professionally managed portfolio solutions were less likely to trade in 2020 than those who were self-directors. Among self-directors who traded in 2020, older participants made the most changes and also were significantly less likely to use a professionally managed portfolio option. This analysis suggests that through thoughtful plan design, in particular by encouraging use of a professionally managed portfolio and offering guaranteed income strategies, plan sponsors can help participants stay the course during periods of market volatility.

Keywords: defined contribution plans, retirement, guaranteed income

JEL Classification: G10, G11