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

79 Pages Posted: 19 Jul 2012 Last revised: 15 Aug 2015

See all articles by Veronika Krepely Pool

Veronika Krepely Pool

Indiana University - Kelley School of Business - Department of Finance

Clemens Sialm

University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER); AQR Capital Management, LLC

Irina Stefanescu

Federal Reserve Board, Washington D.C.; Organization for Economic Co-Operation and Development (OECD)

Multiple version iconThere are 4 versions of this paper

Date Written: August 14, 2015

Abstract

This paper investigates whether mutual fund families acting as service providers in 401(k) plans display favoritism toward their own affiliated funds. Using a hand-collected dataset on the menu of investment options offered to plan participants, we show that fund deletions and additions are less sensitive to prior performance for affiliated than for unaffiliated funds. 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 this favoritism is not information driven.

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

JEL Classification: G23, J23

Suggested Citation

Pool, Veronika Krepely and Sialm, Clemens and Stefanescu, Irina, It Pays to Set the Menu: Mutual Fund Investment Options in 401(k) Plans (August 14, 2015). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2112263 or http://dx.doi.org/10.2139/ssrn.2112263

Veronika Krepely Pool

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Clemens Sialm

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

HOME PAGE: http://faculty.mccombs.utexas.edu/Clemens.Sialm/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Irina Stefanescu (Contact Author)

Federal Reserve Board, Washington D.C. ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

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