Mutual Funds and 401(K) Pension Plan Fees, Services, and Performance

20 Pages Posted: 27 Aug 2011 Last revised: 7 Oct 2012

See all articles by John A. Haslem

John A. Haslem

University of Maryland - Robert H. Smith School of Business; University of Maryland - Robert H. Smith School of Business

Date Written: October 1, 2011

Abstract

Mutual funds are the primary providers of investment management services to 401(k) pension plans. These plans are complex to operate and administer and subject to multiple regulators. Third-party revenue sharing is used to pay some portion of plan service provider costs, other than employer/plan sponsor costs.

Sub-transfer agency fees are one type of revenue sharing payments. In providing investment management services to pension plans, mutual fund advisers pay sub-transfer agency fees directly to the plan administrator and service provider. Fund advisers are self-reimbursed by including these payments as management fees in the fund expense ratio charged to plan participant accounts.

Employer/plan sponsors create pension plans, select service providers, and determine the investment objectives of plan investments. Plan service provider fees and services include: (1) employer/plan sponsor fees, (2) plan participant account fees, (3) investment management service provider fees, (4) plan administrator and service provider costs, and (5) investment management services provider. The general types of services provided include (1) administrative services, (2) participant services, and (3) regulatory and compliance services.

The scenarios under which 401(k) pension plan fees are lower are discussed and specified. Finally, empirical findings concerning how the actions of plan administrators and plan participants affect selection and performance of pension funds and participant mutual fund allocations.

Keywords: 401(k) pension plans, regulation, revenue sharing, sub-transfer agency fees, plan fees, plan service

JEL Classification: G23

Suggested Citation

Haslem, John A. and Haslem, John A., Mutual Funds and 401(K) Pension Plan Fees, Services, and Performance (October 1, 2011). Available at SSRN: https://ssrn.com/abstract=1918124 or http://dx.doi.org/10.2139/ssrn.1918124

John A. Haslem (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

5901 MacArthur Blvd NW 124
Washington, DC DC 20016
United States
202-236 3172 (Phone)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742
United States
202-387 2025 (Phone)

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