A recent study published by the Center for Retirement Research at Boston College concluded that mutual fund companies serving as 401(k) trustees favor their own funds, and affilated funds with subpar performance continued to underperform.
Staying power: Poorly performing affiliated mutual funds are less likely to be removed from an investment lineup than poorly performing unaffiliated funds. In addition, when it came to adding fund options, past performance wasn’t as critical for affiliated funds vs. unaffiliated funds.
Menu bias: Do favored funds cap- ture more 401(k) assets? The authors determined “biased menu changes, not participant preferences, appear to be primarily responsible for the higher inflows into affiliated funds.”
Underperformance persisted: Among affiliated funds kept on the menu, those in the lowest percentiles by past performance continued to post lower returns.
Source: “Are 401(k) investment menus set solely for plan participants?” Pool, Sialm and Stefanescu, 2015
Compiled and designed by Timothy Pollard and Gregg A. Runburg