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

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.

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

Suggested Citation: 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 (September, 2020). FEDS Working Paper No. 2020-78, Available at SSRN: https://ssrn.com/abstract=3699642 or http://dx.doi.org/10.17016/FEDS.2020.078