Working Paper: NBER ID: w27573
Authors: Mathias Kronlund; Veronika K. Pool; Clemens Sialm; Irina Stefanescu
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.
Keywords: 401k; fee disclosures; investment allocations; retirement plans
JEL Codes: G11; G18; G23; G28; G41; G51; H31; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 2012 DOL disclosure reform (G18) | participants' sensitivity to fund fees (G23) |
| 2012 DOL disclosure reform (G18) | participants' sensitivity to short-term performance (D91) |
| increase in expense ratio (G32) | reduction in a fund's share of the plan (G23) |
| increase in expense ratio (G32) | higher probability of negative flows (F32) |
| higher average contributions (D64) | stronger reaction to fee disclosures (G40) |