Working Paper: NBER ID: w17911
Authors: Olivia S. Mitchell; Stephen Utkus
Abstract: Individual responsibility for portfolio construction is a central theme for defined contribution pensions, yet the rise of target-date funds is shifting investment decisions from workers back to employers. A complex choice architecture including automatic enrollment, reenrollment, and fund mapping, is increasing the number of participants defaulting into employer-selected target-date funds. At the same time, portfolios of non-defaulted participants undergo sizeable changes, with equity share ratios widening by over 40 percent points between younger/older participants. Among active decision-makers, these funds act as a form of implicit employer-provided lifecycle investment advice. More broadly, our findings highlight malleable preferences among retirement investors and a demand for default-based guidance or simplified advice for households facing complex choices.
Keywords: targetdate funds; 401k plans; retirement savings; portfolio construction; behavioral finance
JEL Codes: G02; G11; G2; G23; J14; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Introduction of targetdate funds (TDFs) (G23) | Adoption patterns among participants in 401k plans (D14) |
| Automatic enrollment (H55) | Adoption rates among new hires (M51) |
| Designation of TDFs as default option (G19) | Adoption rates (J13) |
| Adoption of TDFs (Y10) | Changes in portfolios of participants (G11) |
| TDFs act as implicit investment advice (G11) | Shifting responsibility for portfolio decisions from workers to employers (J32) |