PHILADELPHIA — A larger-than-expected number of 401(k) plan participants don't switch options, a new paper shows.
The researchers found that 80% of the 1.2 million participants in 1,530 defined contribution plans left their options untouched during a two-year period in which the stock market returned 43%.
The research was conducted by the Pension Research Council of The Wharton School, University of Pennsylvania, Philadelphia, using participant record-keeping data from The Vanguard Group, Malvern, Pa. The average plan had 776 active participants, $38.4 million in assets and 17 investment options.
"We all knew about participants being subject to inertia, but what surprised us is inertia occurring in a period (2003-2004) of rapidly rising stock prices," said Stephen P. Utkus, principal at the Vanguard Center for Retirement Research and co-author of "The Inattentive Participant: Portfolio Trading Behavior in 401(k) Plans." The other author is Olivia Mitchell, professor of insurance and risk management at Wharton and executive director of the council.
"With the market being up over 40%, participants still didn't rebalance," Mr. Utkus said in an interview.
Ruth Falck, a senior consultant for Watson Wyatt Investment Consulting Inc., New York, said the findings match what's happening with Watson Wyatt's clients. "A vast majority of plan participants don't make changes. A very large number place money in a stable value fund and do not make changes because they are not comfortable with investment decisions," she said.