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The Efficiency of Pension Plan Investment Menus: Investment Choices in Defined Contribution Pension Plans

  • Ning Tang

    (The Wharton School)

  • Olivia S. Mitchell

    (The Wharton School)

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.

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File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp176.pdf
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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp176.

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Length: 33 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:mrr:papers:wp176
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  14. John Angus & William O. Brown & Janet Kiholm Smith & Richard Smith, 2007. "What's in Your 403(b)? Academic Retirement Plans and the Costs of Underdiversification," Financial Management, Financial Management Association International, vol. 36(2), pages 1-38, 07.
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