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U.S. Workers' Investment Decisions for Participant-Directed Defined Contribution Pension Assets

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  • Thomas L. Hungerford
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    Abstract

    Two issues may have a tremendous impact on the adequacy of retirement income for today's workers: the growth of 401(k) pension plans and the possible privatization of Social Security. Workers are becoming increasingly responsible for the adequacy of their retirement income by determining how their retirement savings are invested. This paper examines the investment choices of workers covered by a defined contribution pension plan with responsibility for investments, specifically incorporating self-selection into DC pension plans. The results suggest that (1) current DC plan participants tend to be more aggressive investors than the general work force would be; (2) workers in certain demographic groups tend to invest their pension assets more conservatively than others; and (3) selection is present but appears to be economically unimportant.

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    File URL: http://www.levyinstitute.org/pubs/wp375.pdf
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    Bibliographic Info

    Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_375.

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    Date of creation: Mar 2003
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    Handle: RePEc:lev:wrkpap:wp_375

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    1. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1995. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
    2. Alan L. Gustman & Thomas L. Steinmeier, 1999. "What People Don't Know About Their Pensions and Social Security: An Analysis Using Linked Data from the Health and Retirement Study," NBER Working Papers 7368, National Bureau of Economic Research, Inc.
    3. Jianakoplos, Nancy Ammon & Bernasek, Alexandra, 1998. "Are Women More Risk Averse?," Economic Inquiry, Western Economic Association International, vol. 36(4), pages 620-30, October.
    4. Zvi Bodie, 1989. "Pensions as Retirement Income Insurance," NBER Working Papers 2917, National Bureau of Economic Research, Inc.
    5. Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1110-29, September.
    6. Papke, Leslie, 1998. "How Are Participanats Investing Their Accounts in Participant-Directed Individual Account Pension Plans?," American Economic Review, American Economic Association, vol. 88(2), pages 212-16, May.
    7. Michael A. Curme & William E. Even, 1995. "Pension Coverage and Borrowing Constraints," Journal of Human Resources, University of Wisconsin Press, vol. 30(4), pages 701-712.
    8. Bodie, Zvi & Merton, Robert C. & Samuelson, William F., 1992. "Labor supply flexibility and portfolio choice in a life cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 427-449.
    9. Gary Burtless, 2000. "How Would Financial Risk Affect Retirement Income Under Individual Accounts?," Issues in Brief ib-5, Center for Retirement Research.
    10. Martha Starr-McCluer & Annika Sunden, 1999. "Workers' knowledge of their pension coverage: a reevaluation," Finance and Economics Discussion Series 1999-05, Board of Governors of the Federal Reserve System (U.S.).
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