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

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Abstract

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.

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  • Mathias Kronlund & Veronika K. Pool & Clemens Sialm & Irina Stefanescu, 2020. "Out of Sight No More? The Effect of Fee Disclosures on 401(k) Investment Allocations," Finance and Economics Discussion Series 2020-078, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2020-78
    DOI: 10.17016/FEDS.2020.078
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    2. Linn K. Aasheim & António F. Miguel & Sofia B. Ramos, 2022. "Star rating, fund flows and performance predictability: evidence from Norway," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(1), pages 29-56, March.
    3. Cai, Haidong & Jiang, Ying & Liu, Xiaoquan, 2022. "Investor attention, aggregate limit-hits, and stock returns," International Review of Financial Analysis, Elsevier, vol. 83(C).

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    More about this item

    Keywords

    401(k) plans; Disclosure; Expense ratio; Financial regulation; Mutual funds; Pensions; Performance;
    All these keywords.

    JEL classification:

    • 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
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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