Investment defaults and retirement savings allocations
In 2006, the University of Iowa changed its retirement plan default investment from a money market fund to a target date fund—and the resulting effect on participant behavior was significant.
Prior research has found that retirement plan default provisions increase plan participation and that defaulting participants tend to stick with default contribution amounts. None of these studies, however, examines how different default investment funds might affect participant choices. This paper uses a natural experiment to document how participant behavior changed after a change in the default investment in the University of Iowa defined contribution pension plan.
The authors combined TIAA administrative data on retirement contribution allocations by University of Iowa employees from July 2002 through December 2010 with human resources data and experimental data collected from University of Iowa employees.
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