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|Title: ||THE ADEQUACY OF INVESTMENT CHOICES OFFERED BY 401K PLANS|
|Authors: ||Elton, Edwin J.|
Gruber, Martin J.
Blake, Christopher R.
|Keywords: ||401K plans|
|Issue Date: ||1-Jan-2003 |
|Series/Report no.: ||SC-AM-03-10|
|Abstract: ||Defined-contribution plans represent a major organizational form for
investors’ retirement savings. Today more than one third of all
workers are enrolled in 401K plans. In a 401K plan, participants select
assets from a set of choices designated by an employer. For over half of
401K-plan participants, retirement savings represent their sole
financial asset. Yet to date there has been no study of the adequacy of
the choices offered by 401K plans. This paper analyzes the adequacy and
characteristics of the choices offered to 401K-plan participants for
over 400 plans. We find that, for 62% of the plans, the types of choices
offered are inadequate, and that over a 20-year period this makes a
difference in terminal wealth of over 300%. We find that funds included
in the plans are riskier than the general population of funds in the
same categories. We study the characteristics of plans that are
associated with adequate investment choices, including an analysis of
the use of company stock, plan size, and the use of outside consultants.
When we examine one category of investment choices, S&P 500 index
funds, we find that the index funds chosen by 401K-plan administrators
are on average inferior to the S&P 500 index funds selected by the
aggregate of all investors.|
|Appears in Collections:||Asset Management|
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