What's in Your 403(b)? Academic Retirement Plans and the Costs of Underdiversification
Sponsors of defined contribution retirement plans typically limit the investment choices of plan participants to a small number of investment managers and a limited number of investment vehicles. Such restrictions may limit excessive risk-taking by participants but also may preclude opportunities for efficient diversification. Many college and university 403 (b) plans have restricted investment choices to the retirement annuities offered by TIAA-CREF, the current manager of over half of all 403(b) contributions. Using 10 years of historical data, we study the efficiency of this TIAA-CREF opportunity set relative to a larger set that includes several standard index funds. Extrapolations must be interpreted -with caution. Assuming optimal rebalancing, depending on loss aversion and diversification constraints, the historical sample of returns implies that over a 20-year remaining work life, an employee -with an expanded menu that includes standard index funds could gain over 40% in terminal wealth compared to one who is restricted to TIAA-CREF retirement annuities. Even when a naive diversification strategy of equally weighting (1/n) all available funds is used, the expandedmenu outperforms the restricted portfolio by more than 25% over20years. These differences generally are significant at conventional levels based on parametric and nonparametric testing and do not appear to result from idiosyncratic market performance durinz the sample period. Copyright (c) 2007 Financial Management Association International.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 36 (2007)
Issue (Month): 2 (07)
|Contact details of provider:|| Postal: University of South Florida 4202 E. Fowler Ave. COBA #3331, Tampa, FL 33620|
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0046-3892
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=0046-3892|
When requesting a correction, please mention this item's handle: RePEc:bla:finmgt:v:36:y:2007:i:2:p:1-38. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.