The new research "is and isn't contradicting the conventional wisdom," explained David Blanchett, head of retirement research at Morningstar and co-author of the new study. (Photo: Shutterstock)
For much of the past two decades, the conventional wisdom has been less is more. Plan participants with limited investment knowledge can be overwhelmed by more options—a phenomenon known among behavioral economists as "choice overload."
That can trigger paralysis, and in the worst case, scare a worker away from deferring earnings to 401(k)s.
A body of academic research backed that theory. One study, published in 2004, showed that participation rates declined by 1.5 percent with every 10 investment funds added to a 401(k)s core menu.
That was then, this is now
But new research from Morningstar is pushing back on that conventional wisdom, and in fact shows that with investment menus, bigger is actually better for participation rates and investment outcomes.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
