It Pays to Set the Menu: Mutual Fund Investment Options in 401(K) Plans
53 Pages Posted: 2 Feb 2013 Last revised: 10 Apr 2021
Date Written: February 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.
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