Out of Sight No More? The Effect of Fee Disclosures on 401(k) Investment Allocations
65 Pages Posted: 26 Dec 2018 Last revised: 15 Jul 2020
Date Written: July 14, 2020
We examine the effects of a 2012 regulatory reform that mandated fee and perfor- mance 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 contribu- tions 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: Defined Contribution, Expense Ratio, Performance, Mutual Fund, Flows, Participants, 401(k), Regulation, Disclosure
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