It Pays to Set the Menu: Mutual Fund Investment Options in 401(k) Plans
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Wharton Pension Research Council Working Papers
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401(k)
pension plans
trustee
favoritism
mutual funds
Economics
pension plans
trustee
favoritism
mutual funds
Economics
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Pool, Veronika K
Sialm, Clemens
Stefanescu, Irina
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Abstract
This paper investigates whether mutual fund families acting as service providers in 401(k) plans display favoritism toward their own affiliated funds. Using a hand-collected dataset on retirement investment options, we show that affiliated mutual funds are less likely to be removed from and more likely to be added to a 401(k) menu. In addition, fund deletions and additions are less sensitive to prior performance for affiliated than for unaffiliated funds. 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 this favoritism is not information driven.
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2015-05-01