Financial Sophistication and Conflicts of Interest: Evidence from the Investment Menus Offered in 401(k) Plans

  • Aleksandar Andonov Aleksandar Andonov
  • Mike Qinghao Mao Mike Qinghao Mao

We analyze the investment menus offered within 401(k) pension plans to the employees of the largest finance and non finance firms. Finance firm employees allocate less to sponsor stock and options affiliated with the trustee as compared to employees of other fi rms. In addition, the selection of mutual funds by pension plans sponsored by a fi nance fi rm with an independent trustee is more sensitive to past performance and less biased towards funds affiliated with the trustee. These findings suggest that fi nancial literacy among the plan participants and sponsoring company can mitigate inefficiencies in 401(k) menus. However, financial literacy alone is not sufficient to eliminate inefficient options from the menu, because the higher performance sensitivity and reduced favoritism appear only among pension plans of fi nance fi rms governed by an independent external trustee.

Netspar, Network for Studies on Pensions, Aging and Retirement, is een denktank en kennisnetwerk, gewijd aan het bevorderen van een beter begrip van de economische en sociale gevolgen van pensioenen, vergrijzing en ‘de oude dag’ in Nederland en Europa.

MEER OVER NETSPAR


Missie en strategie           •           Netwerk           •           Organisatie
Netspar Brief       •          Werkprogramma 2019-2023        •         Onderzoeksagenda Netspar NexT

OVER NETSPAR

Onze partners

vu
B20160708_nationale nederlanden
university-of-twente
B20160708_apg
B20160708_ministeries
Bekijk al onze partners