Author : Brian K. Baugh
Release : 2017
Genre : Home economics
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Three Essays in Household Finance - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Three Essays in Household Finance write by Brian K. Baugh. This book was released on 2017. Three Essays in Household Finance available in PDF, EPUB and Kindle. In the third essay, I study the extent to which defined contribution (DC) asset allocation is influenced by plan defaults and whether individuals exercise their option to leave the DC plan. I analyze the investments of 13,500 employees in a state-sponsored retirement plan and find persistent effects of default allocations. Cohorts born in the 1990s hold 16.5% less in money market funds (the historical default allocation) and over 25% more in target date funds (the current default allocation) than those born in the 1980s and earlier. I then analyze a unique feature of the DC plan which enables individuals to transition to a defined benefit (DB) plan (or DB/DC mix) five years after their initial hire date. I find that 22% of individuals exercise this option, 90% of which switch to a more conservative plan. Switching out of DC plans is concentrated in years following the Great Recession and decreases substantially in the post-recession recovery. Individuals invested in the guaranteed return fund are the least likely to exercise the option to switch plans.