As a part of our support for academic research concerning participant investment behavior (including our support of research by Professor Shlomo Benartzi of UCLA), we post important academic and industry studies on our website.

We have recently posted a study entitled “The Efficiency of Pension Menus and Individual Portfolio Choice in 401(k) Pensions” by Ning Tang and Olivia S. Mitchell of the Wharton School and Gary R. Mottola and Stephen P. Utkus of Vanguard Center for Retirement Research.

The study was done to evaluate participant investment performance. It identified key portfolio investment inefficiencies and attributes them to offered investment menus versus individual portfolio choices. As noted in the study:

“We show that the vast majority of 401(k) plans offers reasonable investment menus. Nevertheless, participants ‘undo’ the efficient menu and make substantial mistakes: in a 20-year career it will reduce retirement wealth by one-fifth, in fact, more than what a naïve allocation strategy would yield. We outline implications for plan sponsors and participants seeking to enhance portfolio efficiency: don’t just offer or choose more funds, but help people invest smarter”
Source: The Report to Plan Sponsor