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Essays on retirement plans and fund commonalities within mutual fund families

This dissertation studies underfunding in defined benefit (DB) pension plans and firms' contribution behavior, 401(k) plan participant investments in lifecycle funds under plan sponsors' initiative, and fund commonalities within mutual fund families. Responding to the recent decline in DB pension funding, firms have increased pension contributions to their underfunded plans. In the first essay I empirically examine firms' contribution behavior to underfunded DB plans and funding choice for pension contributions. I find that firms reveal different sensitivities of pension contributions to underfunding across aggregate funding levels. Furthermore, at a lower funding level firms have the greater sensitivity of pension contributions to underfunding and significantly utilize the tax deductibility of pension contributions. As for a funding choice to fund pension deficits, firms use debt financing at a low funding level, but utilize internal funding by decreasing capital expenditures at a lower funding level. Firms that use the debt financing are likely to have investment-grade credit ratings or high debt leverage, while firms that use the internal funding are likely to be high-levered ones. Recently lifecycle funds have rapidly grown in self-directed retirement plans. Despite the increasing popularity among plan sponsors and participants, there are few empirical studies on lifecycle funds. In the second essay, I examine the recent lifecycle fund adoption behavior of 401(k) plan participants from 2004 to 2006. I find that the likelihood of participants changing an investment strategy to adopt lifecycle funds is not significantly affected by participant demographic characteristics, but by participant account and plan design features. This study extends our understanding of 401(k) plan participants' investment behavior by finding (1) that the substitution of lifecycle funds for balanced funds, as well as the designation of lifecycle funds as a plan default, strongly affect participants' investments in lifecycle funds and (2) that balanced fund holdings of participants are negatively associated with their lifecycle fund investments. Mutual funds account for a significant portion of household financial assets and retirement assets. An understanding of characteristics of mutual funds is crucial to fund investors--especially those whose retirement nest eggs are in mutual funds. In the final essay, I examine the impacts of fund commonalities within mutual fund families on fund characteristics in terms of return residual correlations and fund operating expenses. As fund commonalities within a fund family, I focus on common stock holdings and common management of funds. I find that common stock holdings and an existence of a common manager of funds are positively related to return residual correlations, but negatively related to fund operating expenses. This finding suggests that when investors select low-cost equity funds within a family, they should be aware that there exists an investment risk that the fund commonalities that lower fund operating expenses may additionally increase return correlations of the funds. / Business Administration

Identiferoai:union.ndltd.org:TEMPLE/oai:scholarshare.temple.edu:20.500.12613/3736
Date January 2008
CreatorsPark, Youngkyun
ContributorsVanDerhei, Jack L., Elyasiani, Elyas, Reeb, David, Viswanathan, Krupa S.
PublisherTemple University. Libraries
Source SetsTemple University
LanguageEnglish
Detected LanguageEnglish
TypeThesis/Dissertation, Text
Format160 pages
RightsIN COPYRIGHT- This Rights Statement can be used for an Item that is in copyright. Using this statement implies that the organization making this Item available has determined that the Item is in copyright and either is the rights-holder, has obtained permission from the rights-holder(s) to make their Work(s) available, or makes the Item available under an exception or limitation to copyright (including Fair Use) that entitles it to make the Item available., http://rightsstatements.org/vocab/InC/1.0/
Relationhttp://dx.doi.org/10.34944/dspace/3718, Theses and Dissertations

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