It Pays to Set the Menu: Mutual Fund Investment Options in 401(K) Plans

Posted: 15 Jul 2021 Last revised: 22 Jul 2021

See all articles by Veronika Krepely Pool

Veronika Krepely Pool

Vanderbilt University - Finance

Clemens Sialm

University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER)

Irina Stefanescu

Board of Governors of the Federal Reserve System

Date Written: August, 2014

Abstract

This paper investigates whether mutual fund families acting as service providers in 401(k) plans display favoritism toward their own funds. Using a hand-collected dataset on retirement investment options, we show that poorly-performing funds are less likely to be removed from and more likely to be added to a 401(k) menu if they are affiliated with the plan trustee. We find no evidence that plan participants undo this affiliation bias through their investment choices. Finally, the subsequent performance of poorly-performing affiliated funds indicates that these trustee decisions are not information driven.

Suggested Citation

Pool, Veronika Krepely and Sialm, Clemens and Stefanescu, Irina, It Pays to Set the Menu: Mutual Fund Investment Options in 401(K) Plans (August, 2014). FEDS Working Paper No. 2014-96, Available at SSRN: https://ssrn.com/abstract=3887174

Veronika Krepely Pool (Contact Author)

Vanderbilt University - Finance ( email )

United States
615-343-0277 (Phone)

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

Irina Stefanescu

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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