Out of Sight No More? The Effect of Fee Disclosures on 401(k) Investment Allocations

Abstract

We examine the effects of a 2012 regulatory reform that mandated fee and performance disclosures for the investment options in 401(k) plans. We show that participants became significantly more attentive to expense ratios and short-term performance after the reform. The disclosure effects are stronger among plans with large average contributions per participant and weaker for plans with many investment options. Additionally, these results are not driven by secular changes in investor behavior or sponsor-initiated changes to the investment menus. Our findings suggest that providing salient fee and performance information can mitigate participants’ inertia in retirement plans.

Keywords: 401(k) pension plans, Disclosure, Expense ratio, Financial regulation, Mutual funds, Pensions, Performance

JEL Classification: H55, G40, G28, G11, G23