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Research Details

UM08-20 - The Efficiency of Pension Plan Investment Menus: Investment Choices in Defined Contribution Pensions

Olivia S. Mitchell

Few previous studies have explored whether defined contribution retirement saving plans offer sufficiently diversified investment menus, though it is likely that these menus significantly shape workers’ accumulations of retirement wealth. This paper assesses the efficiency and performance of 401(k) investment options offered by a large group of US employers. We show that most plans are efficient compared to market benchmark indexes. Three performance measures underscore the fact that these plans tend to offer a sensible investment menu, when measured in terms of the menus’ mean-variance efficiency, diversification, and participant utility. The key factor contributing to plan efficiency and performance has to do with the types of funds offered, rather than the total number of investment options provided.

Publications (PDF)

Brief:
Efficiency of Pension Plan Investment Menus: Choices in DC Pension Plans
Working Paper(s):
The Efficiency of Pension Plan Investment Menus: Investment Choices in Defined Contribution Pension Plans