Are Empowerment and Education Enough? Underdiversification in 401(k) Plans

Brigitte C. Madrian,

Brigitte C. Madrian University of Pennsylvania, Aetna Professor of Public Policy and Corporate Management - Harvard Kennedy School, Research Associate - National Bureau of Economic Research

David Laibson, and

David Laibson

James J. Choi

JJC

James J. Choi Yale University

Discussants: Nellie Liang and

Nellie Liang Senior Fellow - Economic Studies, The Hutchins Center on Fiscal and Monetary Policy

William G. Gale

William G. Gale Senior Fellow - Economic Studies, The Arjay and Frances Fearing Miller Chair in Federal Economic Policy, Co-Director - Urban-Brookings Tax Policy Center

AT THE END of 2000, current and former employees of the energy trading
company Enron Corporation held $2.1 billion in the firm’s 401(k) retirement
savings plan. Sixty-two percent of that money was invested in Enron
stock, then trading at $83 a share. In October 2001 Enron’s finances began
to unravel as its accounting improprieties came to light. Enron stock plummeted
over the next several weeks, and on December 2, 2001, the company
declared bankruptcy, rendering its shares worthless. Thousands of
Enron employees lost their jobs and a large fraction of their retirement
wealth simultaneously.