November 2014

It Pays to Set the Menu: Mutual Fund Investment Options in 401(k) plans

Veronika K. Pool, Clemens Sialm, and Irina Stefanescu

Abstract:

This paper investigates whether mutual fund families acting as service providers in 401(k) plans display favoritism toward their own funds. Using a hand-collected dataset on retirement investment options, we show that poorly-performing funds are less likely to be removed from and more likely to be added to a 401(k) menu if they are affiliated with the plan trustee. We find no evidence that plan participants undo this affiliation bias through their investment choices. Finally, the subsequent performance of poorly-performing affiliated funds indicates that these trustee decisions are not information driven.

Accessible materials (.zip) | Internet Appendix - Accessible materials (.zip)

Keywords: 401(k) pension plans, mutual funds, favoritism

PDF: Full Paper

Back to Top
Last Update: June 26, 2020