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

Author

Listed:
  • Veronika Pool

    (Indiana University, Bloomington)

  • Clemens Sialm

    (University of Texas at Austin)

  • Irina Stefanescu

    (Board of Governors of the Federal Reserve System)

Abstract

This paper investigates whether mutual fund families acting as trustees of 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 and are costly to retirement savers.

Suggested Citation

  • Veronika Pool & Clemens Sialm & Irina Stefanescu, 2014. "It Pays to Set the Menu: Mutual Fund Investment Options in 401(k) Plans," Discussion Papers 13-021, Stanford Institute for Economic Policy Research.
    • Handle: RePEc:sip:dpaper:13-021
    as

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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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