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

By Gur Huberman, Wei Jiang. 2006

348 citations recorded by the source corpus.

Records of more than half a million participants in more than six hundred 401(k) pension plans indicate that participants tend to use a small number of funds: The number of participants using a given number of funds peaks at three funds and declines after more than three funds. Participants tend to allocate their contributions evenly across the funds they use, with the tendency weakening with the number of funds used. The median number of funds used is between three and four, and 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 those offered by his plan. The paper also comments on limitations on inference available from experiments and from aggregate-level data analysis.

Subfields: Economics and Econometrics, General Decision Sciences

View Paper: https://www.semanticscholar.org/paper/7b4f3186b56fe9a6abf2bbc6a80cea4570218c26

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Citations in the corpus

Preferred Risk Habitat of Individual Investors (2010, neutral): “The use of Datastream as a provider of stock returns raises a number of methodological concerns (Ince and Porter (2005) elaborate on this point).”
Choice proliferation, simplicity seeking, and asset allocation ☆ (2010, background): “On the other hand, Huberman and Jiang (2006) contest the sensitivity of asset allocation to the features of the 401(k) plan and report that: (i) the composition of funds offered (e.g., fraction of funds that are equity funds) does not sizeably affect asset allocation, and (ii) the number of funds…”
The 1/ N investment strategy is optimal under high model ambiguity (2012, positive): “In Huberman and Jiang (2006), a paper motivated by the work of Benartzi and Thaler (2001), data on the choice of consumers in actual 401(k) plans is analyzed.”
Individual Account Investment Options and Portfolio Choice: Behavioral Lessons from 401(K) Plans (2007, neutral): “Benartzi and Thaler (2001) provide evidence of the former and Huberman and Jiang (2006), Agnew (2006), and Holden and VanDerhei (2001) provide evidence for the latter, suggesting that both types of investors may exist.”
Gut Feelings: The Intelligence of the Unconscious (2007, neutral): “Huberman and Jiang, 2006.”
Choosing Outcomes versus Choosing Products: Consumer‐Focused Retirement Investment Advice (2008, background): “To compute the size of the decision space, we can assume that a person may choose a portfolio of between 1 and 10 funds—this would cover nearly all the plan participants studied by Huberman and Jiang (2006)—and make allocations in units no smaller than five percentage points.”
On the comparative performance of socially responsible and Islamic mutual funds (2014, background): “In an application to asset allocation in the popular 401(k) plans, Huberman and Jiang (2006) examine the sensitivity of choices made (the number of funds in which a participant chooses to invest all of his balance) against choices offered (the number of fund options available to employees of the…”
Loyalty-Based Portfolio Choice (2009, background): “There are various plan characteristics over which management has discretion, a number of which have been shown to affect employee investment choice (Choi, Laibson, Madrian, and Metick (2004), Liang and Weisbenner (2002), Huberman and Jiang (2004)).”