Working Paper: NBER ID: w18764
Authors: Veronika K. Pool; Clemens Sialm; Irina Stefanescu
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.
Keywords: 401k; mutual funds; trustee favoritism; investment options
JEL Codes: G02; G11; G23; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trustee Affiliation (I29) | Fund Deletion Probability (D14) |
| Trustee Affiliation (I29) | Fund Addition Frequency (G23) |
| Fund Performance Sensitivity (G19) | Fund Deletion Probability (D14) |
| Trustee Affiliation (I29) | Performance Sensitivity (D29) |
| Trustee Affiliation (I29) | Poor Investment Outcomes (G11) |