IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Are 401(k) Investment Menus Set Solely for Plan Participants?

Listed author(s):
  • Veronika K. Pool
  • Clemens Sialm
  • Irina Stefanescu

Mutual fund companies play a critical part in the nation’s retirement saving system. They manage about 56 percent of the $4.7 trillion in assets held by 401(k)s and other defined contribution plans. At the same time, these fund companies often help sponsors manage the plans and set the menu of investment options. This dual role creates conflicting incentives. On the one hand, fund companies are hired by plan sponsors – and required by law – to create menus that serve the interests of plan participants. On the other hand, they also have an incentive to include their own proprietary funds on the menu, even when more suit­able options are available from other fund families. This brief, based on a study forthcoming in The Jour­nal of Finance, investigates the extent of this conflict between the interests of mutual fund companies and plan participants. The brief proceeds as follows. The first section describes the study design and the data. The second section investigates whether mutual fund companies tend to influence 401(k) menus in ways that favor their own funds, especially their poor-quality funds. The third section explores whether participants shift their savings to offset any bias found in menu decisions, especially decisions that favor the fund company’s sub-par performers. The fourth section considers whether these sub-par funds continue to produce sub-par returns. The final section concludes that mutual fund company involvement in 401(k) menu decisions appears to favor the company’s own funds, with potential adverse effects on the retirement savings of plan participants.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://crr.bc.edu/briefs/are-401k-investment-menus-set-solely-for-plan-participants/
Download Restriction: no

Paper provided by Center for Retirement Research in its series Issues in Brief with number ib2015-13.

as
in new window

Length: 7 pages
Date of creation: Aug 2015
Handle: RePEc:crr:issbrf:ib2015-13
Contact details of provider: Postal:
Hovey House, 140 Commonwealth Avenue, Chestnut Hill, MA 02467

Phone: (617) 552-1762
Fax: (617) 552-0191
Web page: http://crr.bc.edu/
Email:


More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:crr:issbrf:ib2015-13. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Grzybowski)

or (Christopher F Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.