Offering versus Choice in 401(k) Plans: Equity Exposure and Number of Funds

Records of over half a million participants in more than 600 401(k) plans indicate that participants tend to allocate their contributions evenly across the funds they use, with the tendency weakening with the number of funds used. The number of funds used, typically between three and four, is not se...

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Bibliographic Details
Published in:The Journal of finance (New York) 2006-04, Vol.61 (2), p.763-801
Main Authors: HUBERMAN, GUR, JIANG, WEI
Format: Article
Language:English
Subjects:
Asset allocation
Business structures
Capital market
Control variables
Deferred compensation
Empirical tests
Equity
Equity funds
Financial economics
Financial investments
Financial portfolios
Framing effects
Heuristics
Investment trusts
Investors
Retirement planning
Standard error
Studies
Survey data
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Summary:Records of over half a million participants in more than 600 401(k) plans indicate that participants tend to allocate their contributions evenly across the funds they use, with the tendency weakening with the number of funds used. The number of funds used, typically between three and four, is not sensitive to the number of funds offered by the plans, which ranges from 4 to 59. A participant's propensity to allocate contributions to equity funds is not very sensitive to the fraction of equity funds among offered funds. The paper also comments on limitations on inferences from experiments and aggregate-level data analysis.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.2006.00854.x