Do Pension Plans with Participant Investment Choice Teach Households to Hold More Equity?
- 1 January 1999
- journal article
- Published by Board of Governors of the Federal Reserve System in Finance and Economics Discussion Series
- Vol. 1999.0 (61) , 1-36
- https://doi.org/10.17016/feds.1999.61
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
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