Defined Contribution Plan Participant’s Position after the Subprime Crisis

Abstract

The growing number of Defined Contribution Plans available in the U.S. has presented many in the U.S. work force with investment decisions. Decisions many of these workers have not been faced with in the past. An analysis of the Survey of Consumer Finance data over the early portion of the sample period, 1992-2010 has shown that the annual average percentage of liquid retirement plan savings allocated to equity assets increased from 43.02% to 66.42%. In 2010, after the subprime crisis, the allocation to equity declined but remained high at 50.65%, even though the market in 2001 and 2008 changed the allocation for many participants. Researchers attempt to find the reason that retirement savings plan participants have chosen to take a riskier position over the years. After controlling for factors such as age and income classifications, this study finds the educational classification to be a significant factor in explaining the percentage that participants allocate to the relatively riskier assets.