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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Do Pension Plans with Participant Investment Choice Teach Households to Hold More Equity?
Scott Weisbenner

Abstract: Some retirement plans allow the participant to choose how funds are invested. Having to direct investments may provide the participant with financial education. This paper finds that households covered by pension plans in which the employee chooses investments are significantly more apt to hold stock outside of their retirement plan than are households with pension plans offering no such choice. The effect of investment choice upon non-pension asset allocation cannot be explained by portfolio rebalancing or differences in income and saving preferences across households. This provides some evidence that the design of a pension plan can influence an employee's financial decisions.

Keywords: Participant-directed plan, portfolio choice

Full paper (148 KB PDF)

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Last update: December 28, 1999