Investment Fees, Net Returns, and Conflict of Interest in 401(K) Plans

Posted: 14 Mar 2017

See all articles by Thomas W. Doellman

Thomas W. Doellman

Saint Louis University - Richard A. Chaifetz School of Business

Sabuhi Sardarli

Kansas State University - Department of Finance

Date Written: March 12, 2016

Abstract

Using a proprietary database of predominantly small to mid-size 401(k) plans administered by nearly 400 unique third-party plan administrators (TPAs), we examine the potential effects of a conflict of interest that arises from the TPA’s incentive to recommend its funds for the investment menu. We find that investment fees are highest and net returns are lowest for plans administered by asset management advisory firms, commercial banks, and insurance companies. The higher fees and lower returns are related to the existence of TPA proprietary funds in these plans’ menus and to proxies for agency conflicts capturing proprietary trading and revenue sharing.

JEL Classification: G10, G11, G20, G21, G23

Suggested Citation

Doellman, Thomas W. and Sardarli, Sabuhi, Investment Fees, Net Returns, and Conflict of Interest in 401(K) Plans (March 12, 2016). Journal of Financial Research, Vol. 39, No. 1, 2016, Available at SSRN: https://ssrn.com/abstract=2931631

Thomas W. Doellman

Saint Louis University - Richard A. Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO 63108-3397
United States

Sabuhi Sardarli (Contact Author)

Kansas State University - Department of Finance ( email )

Manhattan, KS 66506
United States

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