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

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  • WEISBENNER, SCOTT

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.

Suggested Citation

  • Weisbenner, Scott, 2002. "Do pension plans with participant investment choice teach households to hold more equity?," Journal of Pension Economics and Finance, Cambridge University Press, vol. 1(3), pages 223-248, November.
    • Handle: RePEc:cup:jpenef:v:1:y:2002:i:03:p:223-248_00
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    Cited by:

    1. 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.
    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. James Poterba & Joshua Rauh & Steven Venti & David Wise, 2007. "Defined Contribution Plans, Defined Benefit Plans, and the Accumulation of Retirement Wealth," NBER Chapters, in: Public Policy and Retirement, Trans-Atlantic Public Economics Seminar (TAPES), pages 2062-2086, National Bureau of Economic Research, Inc.
    4. Fernanda Nechio, 2010. "Foreign stock holdings: the role of information," Working Paper Series 2010-26, Federal Reserve Bank of San Francisco.
    5. Marilyn Clark-Murphy & Paul Gerrans, 2001. "Choices And Retirement Savings: Some Preliminary Results On Superannuation Fund Member Decisions," Economic Papers, The Economic Society of Australia, vol. 20(3), pages 29-42, September.
    6. Nellie Liang & Scott Weisbenner, 2002. "Investor Behavior and the Purchase of Company Stock in 401(k) Plans - The Importance of Plan Design," NBER Working Papers 9131, National Bureau of Economic Research, Inc.
    7. James M. Poterba, 2018. "The Changing Pattern of Stock Ownership in the US: 1989–2013," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 44(1), pages 1-17, January.
    8. Jason Scott Seligman, 2012. "Evidence on the Financial Capability of Elder Workers Facing Lump-Sum Retirement Plan Distributions," Accounting and Finance Research, Sciedu Press, vol. 1(2), pages 177-177, November.
    9. 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.
    10. Carol C. Bertaut & Martha Starr-McCluer, 2000. "Household portfolios in the United States," Finance and Economics Discussion Series 2000-26, Board of Governors of the Federal Reserve System (U.S.).

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