It Pays to Set the Menu: Mutual Fund Investment Options in 401(K) Plans
Veronika Krepely Pool
Indiana University Bloomington - Department of Finance
University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER)
Indiana University, Bloomington - Finance
January 20, 2013
This paper investigates whether mutual fund families acting as trustees of 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 and are costly to retirement savers.
Number of Pages in PDF File: 53
Keywords: 401(k), pension plans, trustee, favoritism, mutual funds
JEL Classification: G23, J23working papers series
Date posted: July 19, 2012 ; Last revised: January 23, 2013
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