Offering vs. Choice in 401(k) Plans: Equity Exposure and Number of Funds

Posted: 7 Mar 2005

See all articles by Gur Huberman

Gur Huberman

Columbia Business School - Finance and Economics

Wei Jiang

Columbia Business School - Finance and Economics

Abstract

Records of more than half a million participants in more than six hundred 401(k) pension plans indicate that participants tend to use a small number of funds: The number of participants using a given number of funds peaks at three funds and declines after more than three funds. Participants tend to allocate their contributions evenly across the funds they use, with the tendency weakening with the number of funds used. The median number of funds used is between three and four, and is not sensitive to the number of funds offered by the plans, which ranges from 4 to 59. A participant's propensity to allocate contributions to equity funds is not very sensitive to the fraction of equity funds among those offered by his plan. The paper also comments on limitations on inference available from experiments and from aggregate-level data analysis.

Keywords: 401(k) plan, choices, aggregation bias

JEL Classification: G12, G23

Suggested Citation

Huberman, Gur and Jiang, Wei, Offering vs. Choice in 401(k) Plans: Equity Exposure and Number of Funds. Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=646601

Gur Huberman

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
(212) 854-5553 (Phone)

Wei Jiang (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
(212) 854-5553 (Phone)

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