Working Paper: NBER ID: w30721
Authors: Veronika K. Pool; Clemens Sialm; Irina Stefanescu
Abstract: Recordkeepers in DC pension plans are often paid indirectly in the form of revenue sharing from third-party funds on the menu. We show that these arrangements affect the investment menu of 401(k) plans. Revenue-sharing funds are more likely to be added to the menu and are less likely to be deleted. Overall, revenue-sharing plans are more expensive as higher expense ratios are not offset by lower direct fees or by superior performance. Rebates increase with the market power of the recordkeeper suggesting that third-party funds may revenue share to gain access to retirement assets.
Keywords: No keywords provided
JEL Codes: G11; G23; G28; G40; G50; H75
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| revenue sharing (H27) | higher participant costs (J32) |
| revenue sharing (H27) | investment menu design (G11) |
| higher propensity to revenue share (D33) | more likely to be added to menu (C92) |
| revenue sharing (H27) | higher overall fees (G29) |
| rebates from revenue sharing (H20) | higher expense ratios (G32) |
| higher fees (R48) | weaker future performance (D29) |
| revenue sharing (H27) | preferential treatment in menu design (D45) |