Are 401(k) Investment Menus Set Solely for Plan Participants?

Veronika K. Pool, Clemens Sialm and Irina Stefanescu

Issues in Brief from Center for Retirement Research

Abstract: Mutual fund companies play a critical part in the nation’s retirement saving system. They manage about 56 percent of the $4.7 trillion in assets held by 401(k)s and other defined contribution plans. At the same time, these fund companies often help sponsors manage the plans and set the menu of investment options. This dual role creates conflicting incentives. On the one hand, fund companies are hired by plan sponsors – and required by law – to create menus that serve the interests of plan participants. On the other hand, they also have an incentive to include their own proprietary funds on the menu, even when more suit­able options are available from other fund families. This brief, based on a study forthcoming in The Jour­nal of Finance, investigates the extent of this conflict between the interests of mutual fund companies and plan participants. The brief proceeds as follows. The first section describes the study design and the data. The second section investigates whether mutual fund companies tend to influence 401(k) menus in ways that favor their own funds, especially their poor-quality funds. The third section explores whether participants shift their savings to offset any bias found in menu decisions, especially decisions that favor the fund company’s sub-par performers. The fourth section considers whether these sub-par funds continue to produce sub-par returns. The final section concludes that mutual fund company involvement in 401(k) menu decisions appears to favor the company’s own funds, with potential adverse effects on the retirement savings of plan participants.

Pages: 7 pages
Date: 2015-08
New Economics Papers: this item is included in nep-age
References: Add references at CitEc
Citations:

Downloads: (external link)
http://crr.bc.edu/briefs/are-401k-investment-menus ... r-plan-participants/ R
Our link check indicates that this URL is bad, the error code is: 403 Forbidden (http://crr.bc.edu/briefs/are-401k-investment-menus-set-solely-for-plan-participants/ [301 Moved Permanently]--> https://crr.bc.edu/briefs/are-401k-investment-menus-set-solely-for-plan-participants/)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:crr:issbrf:ib2015-13

Access Statistics for this paper

More papers in Issues in Brief from Center for Retirement Research Contact information at EDIRC.
Bibliographic data for series maintained by Amy Grzybowski () and Christopher F Baum ().