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Do pension plans with participant investment choice teach households to hold more equity?

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  • WEISBENNER, SCOTT
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    Abstract

    Some retirement plans allow the participant to choose how funds are invested. Having to direct investments may provide the participant with financial education. This paper finds that U.S. households covered by pension plans in which the employee chooses investments are significantly more apt to hold stock outside of their retirement plan than are households with pension plans offering no such choice. The effect of investment choice upon non-pension asset allocation is not explained by portfolio rebalancing or observable differences in income and saving preferences across households. This provides some evidence that the design of a pension plan may influence an employee s financial decisions outside of the pension plan, although unobserved heterogeneity in worker s preferences could also explain the result.

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    Bibliographic Info

    Article provided by Cambridge University Press in its journal Journal of Pension Economics and Finance.

    Volume (Year): 1 (2002)
    Issue (Month): 03 (November)
    Pages: 223-248

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    Handle: RePEc:cup:jpenef:v:1:y:2002:i:03:p:223-248_00

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    Cited by:
    1. Poterba, James & Rauh, Joshua & Venti, Steven & Wise, David, 2007. "Defined contribution plans, defined benefit plans, and the accumulation of retirement wealth," Journal of Public Economics, Elsevier, vol. 91(10), pages 2062-2086, November.
    2. Gene Amromin, 2008. "Precautionary Savings Motives and Tax Efficiency of Household Portfolios: An Empirical Analysis," NBER Chapters, in: Tax Policy and the Economy, Volume 22, pages 5-41 National Bureau of Economic Research, Inc.
    3. Jeffrey R. Brown & James M. Poterba, 2006. "Household Ownership of Variable Annuities," NBER Chapters, in: Tax Policy and the Economy, Volume 20, pages 163-191 National Bureau of Economic Research, Inc.
    4. Seligman, Jason S. & Bose, Rana, 2012. "Learning by doing: Active employer sponsored retirement savings plan participation and household wealth accumulation," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 162-172.

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