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

53 Pages Posted: 2 Feb 2013

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.

Multiple version iconThere are 4 versions of this paper

Date Written: February 2013

Abstract

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.

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 (February 2013). NBER Working Paper No. w18764. Available at SSRN: https://ssrn.com/abstract=2210783

Veronika Krepely Pool (Contact Author)

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

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

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

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