It pays to set the menu: Mutual fund investment options in 401(k) plans

  • Clemens Sialm Clemens Sialm
  • Irina Stefanescu Irina Stefanescu
  • Veronika Pool Veronika Pool

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 the menu of investment options offered to plan participants, we show that 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.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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