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

Pool, Veronika Krepely; Sialm, Clemens; Stefanescu, Irina

doi:10.2139/ssrn.2209042

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

Netspar Discussion Paper No. 01/2013-002 - revised version August 2015

80 Pages Posted: 31 Jan 2013 Last revised: 24 Dec 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)

There 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: 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). Netspar Discussion Paper No. 01/2013-002 - revised version August 2015. Available at SSRN: https://ssrn.com/abstract=2209042 or http://dx.doi.org/10.2139/ssrn.2209042