Defined Contribution Pension Plans: Sticky or Discerning Money?

Participants in defined contribution (DC) retirement plans rarely adjust their portfolio allocations, suggesting that their investment choices and consequent money flows are sticky and not discerning. However, participants' inertia could be offset by DC plan sponsors, who adjust the plan's...

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Bibliographic Details
Published in:The Journal of finance (New York) 2015-04, Vol.70 (2), p.805-838
Main Authors: SIALM, CLEMENS, STARKS, LAURA T., ZHANG, HANJIANG
Format: Article
Language:English
Subjects:
Capital flow
Defined contribution plans
Investment policy
Investment trusts
Money
Mutual funds
Pensions
Portfolio performance
Retirement
Studies
U.S.A
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Summary:Participants in defined contribution (DC) retirement plans rarely adjust their portfolio allocations, suggesting that their investment choices and consequent money flows are sticky and not discerning. However, participants' inertia could be offset by DC plan sponsors, who adjust the plan's investment options. We examine these countervailing influences on flows into U.S. mutual funds. We find that flows into funds from DC assets are more volatile and exhibit more performance sensitivity than non-DC flows, primarily due to adjustments to the investment options by the plan sponsors. Thus, DC retirement money is less sticky and more discerning than non-DC money.
ISSN:0022-1082
1540-6261
DOI:10.1111/jofi.12232