Deferral rates affect defined contribution plan portfolios more than fund selection, asset allocation or rebalancing, at least claims a new white paper from Putnam Investments
the methodology behind Missing the Forest for the Trees
today. For example, to test out the effect of fund strategies, Putnam used four different scenarios, with strategies including even the crystal ball. Returns across all four different scenarios — realistic or not — were fairly similar across the board.
Without a doubt, no scenario caused as great an impact on portfolios than higher deferral rates. Increased deferral rates of 3 percent to 4 percent, and 6 percent to 8 percent caused final balances to increase from $136,000 to $181,000, and $272,000 and $334,000, respectively.
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