Are Actively Managed Mutual Funds Per Se Imprudent Choices for 401(k) Plans?

Posted: 19 Apr 2019 Last revised: 22 Aug 2019

See all articles by Atanu Saha

Atanu Saha

Econ One Research

Heather Roberts

Econ One Research, Inc.

Date Written: March 21, 2019


Many corporations and financial institutions have recently faced lawsuits in which plaintiffs have alleged harm to 401(k) plan participants by the inclusion of high-fee actively managed mutual funds in plan offerings, instead of low-cost index funds. The goal of our study is to compare the performance of actively managed and passive index funds. Using a large dataset of more than 11,000 mutual funds, we find that, on average, actively managed funds do have higher fees than their index fund counterparts. However, a portfolio of active funds chosen based on certain key characteristics, such as low expense ratio, low turnover, high Sharpe ratio etc., have better net-of-fees returns than passive index funds in the categories of U.S. equity, international equity, fixed income, and mixed assets. The findings in our study imply that inclusion of a higher-fee active fund in a 401(k) plan does not necessarily imply an inferior or imprudent choice.

Keywords: ERISA Litigation, Actively Managed Funds, Passive Index Funds

JEL Classification: G1, G110, G170

Suggested Citation

Saha, Atanu and Roberts, Heather, Are Actively Managed Mutual Funds Per Se Imprudent Choices for 401(k) Plans? (March 21, 2019). Available at SSRN: or

Atanu Saha (Contact Author)

Econ One Research ( email )

1025 Westchester Ave
Suite 315
White Plains, NY 10604
United States

Heather Roberts

Econ One Research, Inc. ( email )

United States

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