Individual Financial Decisions in Retirement Plans: The Role of Participant Direction

Workers with individual retirement saving accounts often make decisions about contribution rates and asset allocation that affect ultimate retirement income. This paper presents econometric evidence from two data sets on the role that participant investment choice plays in asset allocation, contributions, and account balances. My preferred estimates indicate that participants with investment choice are 36 percent more likely to make an annual contribution. These participants are estimated to invest 13 percentage points more in stocks, contribute between one and three percentage points more of salary, and have at least 9000 more in their account than comparable participants without investment choice.