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

Listed author(s):
  • Veronika Pool

    (Indiana University, Bloomington)

  • Clemens Sialm

    ()

    (University of Texas at Austin)

  • Irina Stefanescu

    (Board of Governors of the Federal Reserve System)

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.

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File URL: http://www-siepr.stanford.edu/repec/sip/13-021.pdf
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Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 13-021.

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Date of creation: Jan 2014
Handle: RePEc:sip:dpaper:13-021
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