Essays on 401(k) asset management

In the first chapter of this dissertation, we investigate the determinants of trading activities in defined contribution (DC) pension plans. Using a rich new dataset on 1.2 million workers in over 1,500 plans, we find that most DC plan participants are characterized by profound inertia. Almost all participants (80%) initiate no trades, and an additional 11% makes only a single trade, in a two-year period. Even among traders, portfolio turnover rates are one-third the rate of professional money managers. Those who trade in their DC plans are more affluent older men, with higher incomes and longer job tenure. They tend to use the internet for DC plan account access, hold a larger number of investment options, and are more likely to hold active equity funds rather than index or lifecycle funds. Some plan features, including offering own-employer stock, also raise trading levels. Next, we explore the determinants of investment performance in retirement accounts. The conventional view is that periodic rebalancing is required for optimal accumulation patterns. Our evidence confirms that rebalancers in 401(k) accounts perform better than those fail to rebalance. Passive rebalancers, i.e., who only hold balanced funds, earn 85 basis points per year more than other nontraders. Active rebalancers gain about 26 basis points annually compared to other traders. In other words, rebalancing improves participants\u27 investment performance. Evidence from brokerage accounts suggests that many investors trade too much, a pattern associated with overconfidence. In the 401(k) environment, we confirm that those with higher turnover ratios earn 72 basis points less than those with the lowest turnover ratio, consistent with the overconfidence view. Finally, we examine how employee portfolio selection behavior changes when DC plan sponsors introduce life-cycle (LC) funds to the investment menu. Using difference-in-difference estimation methodology, we find that introducing LC funds does change asset allocation patterns, particularly for younger and female employees, as well as for those with shorter tenure, lower household income, and less financial wealth. Also, introducing LC funds boosts participants\u27 equity exposure and improves their expected risk-adjusted returns. In addition, adding LC funds also reduces idiosyncratic risk for both participants and plans. Consequently, it would appear that plan sponsors can assist participants manage their retirement assets better by offering LC funds