It Pays to Set the Menu: Mutual Fund Investment Options in 401(k) Plans
79 Pages Posted: 9 Dec 2014 Last revised: 15 Aug 2015
Date Written: August 14, 2015
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, mutual funds, favoritism
JEL Classification: G23
Suggested Citation: Suggested Citation