Defined Contribution Retirement Plans

James M. Poterba, the Mitsui Professor of Economics at the Massachusetts Institute of Technology and Director of the Public Economics Program at the National Bureau of Economic Research, has recently published his article entitled Individual Decision Making and Risk in Defined Contribution Plans, 13 Elder L.J. 285 (2005).

Here is the description of the article as found on LexisNexis:

Defined contribution retirement plans expose retirement savers to financial market risks. The amount of risk and the link between financial market fluctuations and retirement income security depends on several choices that plan participants make. This paper describes the behavior of retirement savers who participate in the most common type of defined contribution plan, the 401(k) plan, and the risks that they face. It considers decisions about whether to participate in an available plan, how much to contribute to the plan, how to allocate assets within the plan, and when to draw down assets from the plan. Empirical evidence suggests that a substantial minority of the participants in self-directed defined contribution plans make decisions that expose them to unnecessary risks of inadequate retirement accumulation. The paper discusses a number of policy options that may assist 401(k) participants in assessing and managing the risks associated with retirement saving plans.