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

57 Pages Posted: 26 Dec 2018 Last revised: 27 Jun 2019

See all articles by Mathias Kronlund

Mathias Kronlund

University of Illinois at Urbana-Champaign

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.

Date Written: June 24, 2019

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: Defined Contribution, Expense Ratio, Performance, Mutual Fund, Flows, Participants, 401(k), Regulation, Disclosure

Suggested Citation

Kronlund, Mathias and Pool, Veronika Krepely and Sialm, Clemens and Stefanescu, Irina, Out of Sight No More? The Effect of Fee Disclosures on 401(k) Investment Allocations (June 24, 2019). Kelley School of Business Research Paper No. 19-6. Available at SSRN: https://ssrn.com/abstract=3288808 or http://dx.doi.org/10.2139/ssrn.3288808

Mathias Kronlund (Contact Author)

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Veronika Krepely Pool

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

Register to save articles to
your library

Register

Paper statistics

Downloads
131
Abstract Views
967
rank
225,007
PlumX Metrics